Legal Insights: Court of Federal Claims Rules that HUBZone Program Has Priority Over 8(a) Business Development Program
Spring 2010

On March 2, 2010, the United States Court of Federal Claims publicly released its opinion in Mission Critical Solutions v. The United States, No. 09-864 C, a bid protest heard by Chief Judge Emily C. Hewitt. In sustaining this protest Judge Hewitt ruled that the Historically Underutilized Business Zone (HUBZone) Program has priority over the 8(a) Business Development Program, as well as other small business programs.

The protestor in this proceeding, Mission Critical Solutions (MCS), is both an 8(a) program participant and a qualified HUBZone small business. Due to its 8(a) status, MCS was awarded a sole source contract to provide information technology support services to the Department of the Army.

When the Army decided to issue a follow-on contract for the support services, because of the increased value of the required services, the Army determined the contract could no longer be awarded to MCS on a sole source basis. Instead, the Army awarded the contract on a sole source basis to another 8(a) contractor, Copper River Information Technology, an Alaska native corporation.

MCS protested the Army’s decision to award the contract to Copper River thereby depriving MCS of an opportunity to compete for the contract. As both an 8(a) program participant and a qualified HUBZone small business, MCS argued that the Army should have attempted to compete the requirement among HUBZone small businesses under the HUBZone statute before considering an award under the 8(a) program.

Statutes at Issue
Resolution of the protest required the Court to decide whether 8(a) program participants are permitted to compete equally with HUBZone businesses for federal small business set aside contracts. The Small Business Administration’s 8(a) program was established in 1978 through an amendment to the Small Business Act to promote the business development of small business concerns owned and controlled by socially and economically disadvantaged individuals. Contract opportunities pursuant to the 8(a) program are awarded on the basis of sole source determinations and competition restricted to eligible program participants. 15 U.S.C. § 637.

The HUBZone program was enacted in 1977 as part of the Small Business Reauthorization Act to provide federal contracting assistance to small business concerns operating in HUBZones through contracts awarded on a sole source basis; contracts awarded on the basis of competition restricted to qualified HUBZone small business concerns; and a 10% bid adjustment for contracts awarded through full and open competition. The term “HUBZone” or “Historically Underutilized Business Zone” means any geographic area designated as such by the federal government. 15 U.S.C. § 637a.

Determination of Priority
In deciding the protest, Judge Hewitt first noted that the case turns on statutory interpretation, in particular whether statutory language provides for the priority of the HUBZone program over the 8(a) program, or if it calls for parity between the two programs. In addressing this issue, Judge Hewitt compared the statutes establishing the 8(a) program and the HUBZone program. She read the 8(a) statute as explicitly affording discretion both to the SBA and to agency contracting officers in deciding whether to place a contract opportunity in the 8(a) program. As to the discretion of the SBA, the 8(a) statute provides that the SBA shall enter into 8(a) contracts whenever it determines such action is “necessary or appropriate.” Similarly, a contracting officer is authorized by the 8(a) statute to award contracts “in his discretion.”

In contrast, the judge noted that the HUBZone statute states that a contract opportunity “shall” be competed among qualified HUBZone small business concerns whenever the specified criteria are met, “notwithstanding any other provisions of law,” including those found within the Small Business Act itself. Whereas the 8(a) statute allows the Government to enter into 8(a) contracts when the SBA and the agency decides such an action is justified, the HUBZone statute provides that a contract opportunity shall be awarded on the basis of competition restricted to qualified HUBZone small business concerns, if the contracting officer has a reasonable expectation that not less than two qualified HUBZone businesses will submit offers and that an award can be made at a fair market price.

Based on this construction of the statutes, the Court concluded that the mandatory language of the HUBZone statute requires that a contracting officer first determine whether the specified criteria are met under that statute before awarding a contract under another small business program. Judge Hewitt declared unlawful the Army’s actions in making the sole source award to Copper River without first determining whether a set aside for HUBZone small business concerns was required under the HUBZone statute. The Court therefore ordered the Army to determine whether the criteria of the HUBZone statute was met such that the contract should be awarded on the basis of competition among qualified HUBZone small business concerns before determining whether an award under any other small business program is warranted.

What’s Next?
For small businesses concerned with the Court of Federal Claims’ opinion finding the HUBZone program has priority over the 8(a) program and other small business programs, the question is whether Judge Hewitt’s decision can be reversed. There are two avenues to possible modification of this result. Since Judge Hewitt based her ruling on her interpretations of the HUBZone statute and the 8(a) statute, if Congress decides that it did not intend to grant the HUBZone program priority over other small business programs, it can amend the relevant statutes to take away this priority. Presumably, Congress is already being lobbied for such a remedy.

A second approach to modifying Judge Hewitt’s ruling is by appeal to the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit has jurisdiction to review decisions of the Court of Federal Claims. In turn, decisions of the Federal Circuit are reviewable by the U.S. Supreme Court. Following issuance of Judge Hewitt’s opinion, the Army lost no time in filing a notice of appeal to the Federal Circuit on March 17, 2010. Small businesses will now have to wait to see who has the final word on parity among the federal government’s small business programs, the Federal Circuit, the Supreme Court, or Congress.

Click here to view this article as a PDF.


Related Attorneys