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“What’s In A Name?”: Federal Circuit Holds Claims Court Blurred Distinction Between ‘Size Protests’ And ‘Bid Protests’ In Dismissal For Failure To Exhaust Administrative Remedies

Many small businesses learn the hard way that a “bid protest” and a “size protest” differ in much more than name only. Whereas generally a “bid protest” challenges agency action taken in connection with a procurement and can be timely brought at the Government Accountability Office (“GAO”) or in the U.S. Court of Federal Claims (“COFC”) after award, a “size protest” challenges an offeror’s eligibility as “small” for a small business set-aside and must be filed with the U.S. Small Business Administration (“SBA”) within 5 days of contract award; otherwise, a disappointed offeror will forfeit its right to challenge the awardee’s size. While this consequential distinction may seem clear in a vacuum, a recent decision by the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) demonstrates that distinguishing between a “bid protest” and a “size protest” may not always be so easy. Instead, the Federal Circuit’s decision leaves open the possibility that even when a timely size protest was not filed with the SBA, a disappointed offeror still may be able to challenge the contracting officer’s failure to refer an awardee of a small business set-aside to the SBA for a size status determination by filing a bid protest at the COFC.

The case – Harmonia Holdings Group, LLC v. United States, — F.3d — (Fed. Cir. 2021) – involved a solicitation issued by the U.S. Census Bureau calling for statistical analysis system and database programming support services, and reserving the resulting task order for women-owned small businesses. After award was made to Alethix, LLC (“Alethix”), Harmonia Holdings Group, LLC (“Harmonia”) filed a post-award bid protest at the COFC, alleging (among other grounds) that the contracting officer violated FAR 19.301-1(b) (2019) [now FAR 19.301-1(f)] by failing to refer Alethix to the SBA for a formal size determination to determine if Alethix was eligible for award. FAR 19.301-1(b) (2019) provided that a contracting officer shall accept an offeror’s self-representation as “small” for a specific procurement, “unless (1) another offeror or interested party challenges the concern’s small business representation or (2) the contracting officer has reason to question the representation. Challenges of and questions concerning a specific representation shall be referred to the SBA….”

According to Harmonia, the contracting officer should have realized from the face of Alethix’s proposal that Alethix would be unusually reliant upon its large business subcontractor to perform the work, and that as a result, Alethix was not truly “small” by virtue of its affiliation with its “ostensible” subcontractor. According to Harmonia, the obvious imbalance in Alethix’s proposal should have prompted the contracting officer to refer the matter to the SBA, arguing that the contracting officer’s failure to do so was “irrational and contrary to regulation.” The COFC dismissed this protest ground, ruling Harmonia failed to exhaust its administrative remedies by not timely filing a size protest with the SBA within 5 days of contract award, as required by the SBA regulations.

On appeal, the Federal Circuit affirmed the dismissal, but not because Harmonia failed to exhaust its administrative remedies. While agreeing that “a disappointed bidder must generally exhaust its administrative remedies at the SBA before seeking judicial review of a size protest,” the Federal Circuit nonetheless concluded that the COFC “misapprehended the nature” of Harmonia’s allegations and thereby “blurred the distinction between a size protest and a bid protest.” The Federal Circuit explained that, whereas a “size protest” refers to an administrative challenge to an offeror’s size, which is filed with the SBA, a “bid protest” challenges actions that an agency takes, or fails to take, in connection with a procurement or proposed procurement. Because Harmonia’s complaint “did not ask the [COFC] to make any determination whether Alethix qualified as a small business concern for purposes of the procurement,” but instead “asked the court to resolve whether the contracting officer had acted in conformity with applicable regulatory requirements, [Harmonia] stated a bid protest rather than a size protest.” Thus, the Federal Circuit held that the COFC erred by dismissing Harmonia’s protest ground for failure to exhaust the SBA adjudicatory procedures required for size protests.

Nonetheless, the Federal Circuit concluded that the COFC’s error was harmless because Harmonia still failed to state a claim upon which relief can be granted. Notably, the Federal Circuit declined to “decide whether FAR 19.301-1(b) affords an offeror … that did not file its own size protest, the right to challenge the failure of a contracting officer to refer a competing offer to the SBA for a size status determination.” Instead, the Federal Circuit held that, even assuming the regulation did afford Harmonia that right, Harmonia still failed to state a viable claim because: (1) nothing in the regulation required the contracting officer to conduct an independent investigation into an offeror’s small business representation; (2) the fact-intensive (and often highly complicated) nature of ostensible subcontractor relationships made it unlikely that the contracting officer should have realized the existence of such a relationship simply by examining the face of Alethix’s proposal; and (3) even if something in Alethix’s proposal did suggest such an obvious relationship, Harmonia’s factual allegations were insufficient to state a plausible claim that “the indicia of such a relationship were so compelling that the contracting officer necessarily abused his discretion by failing to refer Alethix to the SBA for a size status determination.”

Although Harmonia ultimately did not obtain the relief it wanted, the Federal Circuit’s acknowledgment that a “bid protest” relating to an offeror’s size, but framed as a challenge to the contracting officer’s compliance with applicable regulatory requirements, may be brought without first having to file a “size protest” with the SBA, has the potential to change the post-award protest landscape for small business set-asides.

Consider, for example, a hypothetical where a disappointed offeror learns only much later that the awardee of a small business set-aside had misrepresented its status as “small,” but that misrepresentation should have been obvious to the contracting officer from the face of the awardee’s proposal (or from other close-at-hand information). It would be too late for the disappointed offeror to pursue a size protest given the SBA’s short filing deadlines. But what about filing a complaint at the COFC alleging (as Harmonia did) that it was unreasonable and a violation of FAR 19.301-1 for the contracting officer not to refer the matter to the SBA? If the Federal Circuit’s decision in Harmonia is applied, then the complaint could survive summary dismissal in the face of a challenge that the protestor failed to exhaust administrative remedies before the SBA. And the protestor might be able to get at least some traction in challenging a competitor’s size status, whereas a formal size protest might otherwise be untimely. After all, “size protests” and “bid protests” have different timelines and deadlines. “What’s in a name?” Quite a lot, perhaps.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 180
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About this Author

Adam A. Bartolanzo, Sheppard Mullins, government contracts litigation, FAR Counsil

Adam A. Bartolanzo is an attorney in the Government Contracts, Investigations & International Trade Practice Group in the firm’s Washington, D.C. office.

Mr. Bartolanzo’s practice focuses on government contracts litigation and counseling. His experience includes advising clients on small business set asides, assisting contract termination appeals, performing transactional due diligence specific to government contractors’ needs, and assessing client compliance with the FAR and other regulations.  He has represented both plaintiffs and...

202-747-2643
David Gallacher, Attorney, litigation, administrative, and counseling issues
Associate

David Gallacher is a partner in the Government Contracts, Investigations & International Trade Practice Group in the firm's Washington, D.C. office.

Areas of Practice

Mr. Gallacher's professional experience involves a wide variety of litigation, administrative, and counseling issues related to federal procurement laws. His experience is extensive and includes complex litigation in federal court under the qui tam provisions of the False Claims Act, claims disputes before the Boards of Contract...

202-218-0033
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