____________________________________________________ MOTION TO DISMISS OR, IN THE ALTERNATIVE, FOR SUMMARY RELIEF DENIED: February 22, 1993 ____________________________________________________ GSBCA 12261-P INNOVATIVE TECHNOLOGY SYSTEMS, INC., Protester, v. DEPARTMENT OF THE INTERIOR, Respondent. Pamela J. Bethel, Barbara E. Nicastro, and Robert F. Condon of Bethel & Nicastro, Washington, DC, counsel for Protester. Alton E. Woods and James L. Weiner, Office of the Solicitor, Department of the Interior, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), BORWICK, and HYATT. HYATT, Board Judge. Innovative Technology Systems, Inc. (ITS) has protested respondent's actions with respect to the procurement of certain automatic data processing equipment (ADPE) services. In particular, ITS has challenged the decision of respondent's Minerals Management Service (MMS) to ask the Small Business Administration (SBA) to withdraw the nomination of ITS for award of a contract to support MMS's Environmental Studies Program Information System (ESPIS). The Department of Interior has moved to dismiss the protest either for lack of jurisdiction or for failure to state a claim. In the alternative, respondent asserts that the protest should be denied summarily based on uncontested facts of record. Background MMS seeks to automate a large amount of research material that it has amassed over the past twenty years. These materials consist of environmental information and data of relevance to offshore leasing and management activities on the outer continental shelf (OCS). The ESPIS contract is intended to procure the necessary ADP design, systems, applications, and services needed to develop a national consolidated information and data system, or text-retrieval system, for the MMS Environmental Studies Program. Protest File, Exhibit 5. In February 1992, MMS sent letters to four small business firms indicating its interest in contracting with a firm that had "experience developing on-line, multi-user, full text associative retrieval systems." It requested each firm to supply a capability statement describing its ability to provide the skills and talent needed to develop such a system. Protest File, Exhibit 1. One of the firms so contacted was ITS. Id. ITS and another company responded with the requested information. Protest File, Exhibits 2-4. After evaluating the information received from the two prospective contractors, MMS concluded that ITS was the more qualified of the two to perform the contemplated contract. Id., Exhibit 4. In a letter dated May 6, 1992, MMS informed the SBA that it had identified this effort as suitable for placement under Section 8(a) of the Small Business Act, 15 U.S.C.A. 637(a) (West Supp. 1992), and requested that the SBA authorize it to solicit a proposal from ITS and commence negotiations with that firm. Protest File, Exhibit 5. By letter dated May 20, 1992, the SBA responded, accepting the agency's offer and authorizing it to negotiate directly with ITS. Based on the draft statement of work provided by MMS to the SBA, the SBA concluded that the requirement was suitable for 8(a) contracting and that ITS had the requisite capabilities to perform. Id., Exhibit 6. Following ITS's nomination by SBA to perform the ESPIS project, the contracting officer commenced negotiations with ITS. The contracting officer and an MMS cost analyst met with protester's president and discussed various issues pertinent to the award of a cost-reimbursement contract. One such issue was the need for a Defense Contract Audit Agency (DCAA)-approved accounting system as a prerequisite to an award. Affidavit of Katherine Valltos (Valltos Affidavit), dated Jan. 28, 1993, 10-11. During this meeting, ITS's president represented that the firm's accounting system was currently undergoing such an audit in connection with a cost contract with the Treasury Department. She was asked to provide the name and telephone number of this DCAA auditor. Id., 10, 12. According to the contracting officer, this information was not readily forthcoming. Id., 13. In the interim, MMS went ahead and placed a small purchase order to ITS for ADP support services. Protest File, Exhibit 10; Valltos Affidavit 15. In September 1992, ITS's president requested that the contracting officer execute an assignment of claims form in connection with the small purchase order. Shortly after that request was made, the contracting officer was informed by one of her technical representatives of concerns about ITS's billings on that contract and was told of a complaint about the lack of expertise of a consultant provided to perform the small purchase order. Valltos Affidavit, 18-19; Protest File, Exhibit 18. Thereafter, protester's president submitted a revised assignment of claims form, for another financial institution, to the contracting officer. Valltos Affidavit, 27. At around the same time, protester's president contacted the contracting officer to inform her that ITS had filed for Chapter 11 bankruptcy; the filing was explained as having been made solely to protect ITS against a default judgment obtained by a former landlord. Protest File, Exhibit 14. Shortly after she informed MMS of the reorganization proceeding, protester's president presented a letter from Bankruptcy Court dismissing that proceeding. Valltos Affidavit, 21, 23. Also during the period from September to mid-November 1992, complaints were received about performance problems under the small purchase contract, and MMS learned that the DCAA had cancelled its audit, on behalf of the Treasury Department, of ITS's accounting system. Valltos Affidavit, 25, 28. The contracting officer spoke with the Treasury Department's contracting officer concerning ITS's efforts on that contract and was told that Treasury was "frustrated" with ITS. Id., 26. In September 1992, the contracting officer telephoned SBA and expressed reservations about proceeding with award of a contract to ITS. In mid-December 1992, MMS received a capability statement from another small business concern in response to a different procurement. MMS thereafter asked this company for a targeted capabilities statement. Valltos Affidavit 22, 32- 34. By letter dated December 17, 1992, MMS wrote to SBA asking to withdraw the nomination of ITS and seeking authority to negotiate with and award to the alternate company instead. Protest File, Exhibit 26. SBA responded in a letter dated January 13, 1993, authorizing MMS to conduct negotiations with the second nominee. The letter makes no specific reference to ITS, although there is a statement that a "determination has been made that acceptance of this procurement will cause no adverse impact on another small business concern." Id., Exhibit 29. Notably, however, the identical statement was made in the acceptance letter for ITS, as well. Id., Exhibit 6. Discussion Upon learning that it was no longer being considered for award, ITS protested, alleging that the agency improperly abandoned negotiations with it in favor of the other small business. The crux of ITS's protest is that MMS acted improperly in requesting SBA to replace ITS with another company -- i.e., ITS alleged that MMS supplied misinformation to SBA concerning protester's ability to perform the contract. MMS has filed a motion seeking dismissal of the protest for lack of jurisdiction, arguing that the "final decision regarding ITS' responsibility resided with SBA" and that the Board cannot review the SBA's determination. Secondarily, MMS urges that, at minimum, SBA is an indispensable party that has not intervened. The Board must either order SBA's joinder as such, or dismiss the case. Next, MMS maintains that protester has failed to state a valid basis of protest. Finally, MMS suggests that the protest should be denied on summary grounds. We address each contention in turn. Subject Matter Jurisdiction Section 8(a) of the Small Business Act authorizes the SBA to enter into contracts with other agencies and to let subcontracts for performing those contracts to eligible small firms, called 8(a) subcontractors. These contracts may be awarded on either a competitive or sole source basis. The applicable Federal Acquisition Regulation (FAR) provisions are set forth at 48 CFR Part 19.8. Under these regulations, one of the ways in which the 8(a) program may be implemented is for an agency to identify a suitable eligible small business to perform its needs and to make an offer to the SBA. 48 CFR 19.803(c) (1991). That is what has taken place here -- MMS identified ITS and recommended it for a sole source award. As provided in the regulations, the SBA accepted the offer and authorized MMS to negotiate directly with the nominated firm. 48 CFR 19.804-2, 19.804-3 (1991). SBA's applicable regulations also address this situation: (1) Once a procurement is deemed suitable for acceptance as an 8(a) sole source contract, it will normally be accepted on behalf of the participant recommended by the procuring agency provided that: . . . . (ii) The Participant is determined by SBA to be a responsible contractor with respect to performance of the contract. 13 CFR 124.308(e)(1) (1992). MMS maintains that under the statute and its own regulations, SBA is vested with the sole prerogative to make responsibility determinations in noncompetitive 8(a) set-asides such as the procurement involved here, and that the Board cannot review that determination. It relies on the decision in DAE Corp. v. Engeleiter, 958 F.2d 436 (D.C. Cir. 1992), which applies the pertinent SBA regulations. ITS responds that it is not challenging the SBA's actions in the de-nomination process. Rather, it is asserting that MMS acted improperly in misinforming SBA as to its financial circumstances and in requesting that another small business concern be nominated to replace ITS. Although DAE Corp. does indeed hold that SBA is charged with the sole responsibility to make such a determination, it is not at all clear that that is what occurred here. In DAE Corp. SBA itself had sought to obtain information concerning the financial status of the small business proposed by the agency to receive a sole source set-aside contract. SBA was unable to obtain the information it needed to assess the company's financial capability and thus advised the procuring agency to recommend another contractor. Id. at 438. Here, at least on the record available to date, it is the agency that contends that it could not obtain the financial information it wanted from ITS, and that what information it did obtain was unsatisfactory. The record contains no direct evidence that SBA ever determined that ITS was not responsible. Curiously, the correspondence from SBA authorizing MMS to proceed with the second company makes no mention of ITS whatever.[foot #] 1 Absent any evidence that the SBA independently reviewed ITS's financial status and agreed that it was nonresponsible, we cannot, at this juncture, conclude that we lack jurisdiction over ITS's protest of the agency's actions in obtaining permission to proceed with the other company on the ground that SBA has determined the company to be nonresponsible. Indispensable Party MMS also argues, however, that we cannot proceed with this protest absent the participation of SBA as a party. It cites us to the Federal Rules of Civil Procedure, Rule 19, which provides that if a necessary party cannot be joined to a lawsuit, the court, in its discretion, may dismiss the suit. SBA, although notified of the protest, did not intervene. ITS has alleged no improper actions attributable to SBA. We are not persuaded that SBA is a necessary party to the protest in terms of the relief that might be ordered should protester succeed. Although SBA employees may be critical fact witnesses, their participation in a hearing can be assured through the Board's subpoena powers, if ----------- FOOTNOTE BEGINS --------- [foot #] 1 We are not disposed, on the existing record, to interpret the sentence stating that no other small firm is adversely affected to constitute a determination that ITS was deemed nonresponsible by SBA. This identical sentence appeared in the letter authorizing MMS to negotiate with ITS as well, leading us to suspect that it is customarily included in such letters. ----------- FOOTNOTE ENDS ----------- not voluntarily. It is not necessary to join the agency as a party to the proceeding. Failure to State a Valid Ground of Protest Relying on the Board's recent decision in Corporate Systems Resources, Inc. v. Tennessee Valley Authority, GSBCA 11938-P, 1992 BPD 267 (Sept. 25, 1992), MMS asserts that ITS's protest fails to state a claim for which relief can be granted.[foot #] 2 In CSR, the protester similarly challenged an agency decision to withdraw its nomination of the protester to receive an award of a set-aside contract. There, the agency had progressed to negotiations, and was concerned that the proposal received by the small business would not "add value" to a software package of a large business supplier. The Board, recognizing that acceptance into the 8(a) program did not automatically guarantee the eventual award of a contract, ruled on the basis of a fully developed record that TVA's actions did not depart from the applicable standard of affording "fair consideration" to protester's proposal. We cannot at this stage of the proceedings dismiss this protest for failure to state a claim. Admittedly, if the concerns expressed by MMS are ultimately determined to have been reasonable, and shared by SBA, the protest will not succeed. Symbiont, Inc., GSBCA 11123-P, 91-2 BCA 23,876, 23,931, 1991 BPD 72, 86; KOH Systems, Inc./Transaction Response Management, Inc. Joint Venture, GSBCA 9388-P, 88-2 BCA 20,664, 1988 BPD 38. Protester has, nonetheless, alleged that the agency's actions in withdrawing its nomination were improper in light of protester's version of the facts. The facts are vigorously disputed by the parties. It may be that protester can meet its burden to prove that it was not fairly treated by MMS. Depending on the evidence adduced at the hearing, the Board may also find that no independent nonresponsibility determination was actually rendered by the SBA. If so, it is conceivable that protester could obtain some relief. Summary Denial Although recognizing that the facts are disputed, respondent makes an attempt to persuade the Board that the affidavits it has submitted detailing the events leading to the agency's decision to withdraw ITS shed doubt upon the credibility of protester's president. Protester's president has filed a counter affidavit contesting many of the allegations made by respondent, however. We are not persuaded that it would be appropriate to decide these ----------- FOOTNOTE BEGINS --------- [foot #] 2 Initially, MMS also contended that the protest should be dismissed for failure to cite to any statute or regulation that had been violated. This problem was rectified in an amended complaint filed by protester after it retained counsel. ----------- FOOTNOTE ENDS ----------- disputed facts on the weight of the documents filed to date. These are precisely the circumstances mandating a hearing in which the credibility of witnesses may be judged based on personal observation. As such, the motion for summary denial of the protest must be denied as well. Decision Respondent's motions are DENIED. _________________________ CATHERINE B. HYATT Board Judge We concur: ______________________________ ___________________________ STEPHEN M. DANIELS ANTHONY S. BORWICK Board Judge Board Judge