summarizing the joint venture exception in 13 C.F.R. § 121.103
How later courts described this case
- summarizing the joint venture exception in 13 C.F.R. § 121.103
Written by the judges who cited it.
The opinion
In the United States Court of Federal Claims
No. 15-673C
BID PROTEST
(Filed Under Seal: August 14, 2015 | Reissued: August 25, 2015)*
)
IEI-CITYSIDE JV, )
) Post-Award Bid Protest; Small Business
Plaintiff, ) Administration; Joint Venture Agreement;
) 13 C.F.R. § 124.513; 13 C.F.R. §
v. ) 121.103(h)(3); Mentor/Protégé;
) Affiliation.
THE UNITED STATES OF AMERICA, )
)
Defendant. )
)
Kathryn V. Flood, with whom were Pamela J. Mazza and Megan C. Connor, Of
Counsel, PilieroMazza PLLC, Washington, DC, for plaintiff.
Joshua Kurland, Trial Attorney, with whom were Douglas K. Mickle, Assistant
Director, Robert E. Kirschman, Jr., Director, Benjamin C. Mizer, Principal Deputy
Assistant Attorney General, Commercial Litigation Branch, Civil Division, United
States Department of Justice, for defendant.
OPINION AND ORDER
KAPLAN, Judge.
Plaintiff, IEI-Cityside, is a joint venture comprised of Inspection Experts, Inc. and
Cityside Management Corp. It filed this bid protest to challenge a decision by the Office of
Hearings and Appeals of the Small Business Administration (“SBA”) that IEI-Cityside is not a
“small” business within the meaning of SBA regulations for purposes of a solicitation issued by
the Department of Housing and Urban Development (“HUD”) for property and preservation
services for its single family Real-Estate Owned properties.
Currently before the Court are the parties’ cross-motions for judgment on the
administrative record. For the reasons discussed below, the plaintiff’s motion for judgment on
the administrative record is DENIED and the government’s cross-motion is GRANTED.
*
This Opinion was previously issued under seal on August 14, 2015, and the Clerk of the
Court entered judgment on August 18, 2015. The parties were given the opportunity to propose
redactions and indicated on August 24, 2015 that they did not have any suggested redactions to
the Opinion and Order. Therefore, the Court reissues its decision without redactions.
BACKGROUND
I. Statutory Background
In accordance with the Small Business Act, the Small Business Administration is charged
with promulgating “detailed definitions or standards by which a business concern may be
determined to be a small business concern for the purpose of this Chapter or any other Act.” 15
U.S.C. § 632(a)(2)(A) (2012). Pursuant to this statutory authority, the SBA has issued
regulations that “define whether a business entity is small and, thus, eligible for Government
programs and preferences reserved for ‘small business’ concerns.” 13 C.F.R. §§ 121.101(a).
The SBA uses the North American Industry Classification System (“NAICS”) to establish these
size standards, which are generally based on either the number of employees or annual receipts
of the business concern and its business affiliations. 13 C.F.R. §§ 121.101, 121.201.
With exceptions not relevant here, parties to a joint venture are ordinarily considered
“affiliates” under SBA regulations, and will be jointly considered for the purposes of
determining whether they meet the designated size standard for a procurement. 13 C.F.R. §
121.103(h)(3). There are, however, three exceptions to this rule. Id. Of particular relevance to
this case, “[t]wo firms approved by the SBA to be a mentor and protégé under [13 C.F.R.] §
124.520 of these regulations may joint venture as a small business for any Federal government
[contract], provided the protégé qualifies as small” and the joint venture agreement meets the
requirements of 13 C.F.R. §§ 124.513(c) and (d). 13 C.F.R. § 121.103(h)(3)(iii).2
“The mentor/protégé program is designed to encourage approved mentors to provide
various forms of business development assistance to protégé firms.” 13 C.F.R. § 124.520(a). Its
purpose “is to enhance the capabilities of the protégé, [to] assist the protégé with meeting the
goals established in its SBA-approved business plan, and to improve its ability to successfully
compete for contracts.” Id.
Under SBA regulations, for contracts set aside for 8(a) participants, a joint venture must
submit its agreement to the relevant SBA district office prior to contract award to confirm its
compliance with the SBA regulations. “If the procurement is to be awarded other than through
the 8(a) BD program (e.g., small business set aside, HUBZone set aside)” as in this case, the
“SBA need not approve the joint venture prior to award, but if the size status of the joint venture
is protested,” the joint venture agreement “must meet the requirements of [13 C.F.R.] §§
124.513(c) and (d) in order to receive the exception to affiliation authorized by [13 C.F.R. §
121.103(h)].” 13 C.F.R. § 121.103(h)(3)(iii).
Subsection (c) of 13 C.F.R. § 124.513 sets forth the provisions that must be included in
every joint venture agreement to perform a contract awarded as a small business set aside.
Among other things, and most pertinent to this case, the joint venture agreement must itemize all
major equipment, facilities, and other resources to be furnished under the contract by each joint
2
Protégés are participants in the SBA’s 8(a) Business Development program (“BD”)
which is designed to “assist eligible small disadvantaged business concerns compete in the
American economy through business development.” 13 C.F.R. § 124.1.
2
venture partner, with a detailed schedule of its cost or value. 13 C.F.R. § 124.513(c)(6). In
addition, pursuant to subsection (c)(7), the joint venture agreement must “specify[] the
responsibilities of the parties with regard to negotiation of the contract, source of labor, and
contract performance, including ways that the parties to the joint venture will ensure that the
joint venture and the 8(a) partner(s) will meet the performance of work requirements set forth in
paragraph (d)” of the regulation. 13 C.F.R. § 124.513(c)(7). Section (d), in turn, requires that
the small business participant perform at least 40% of the work performed by the joint venture,
and that this work consist of “more than administrative or ministerial functions so that [the small
business] gain[s] substantive experience.” 13 C.F.R. § 124.513(d).
II. Factual Background
A. The Solicitation
On May 22, 2014, the Department of Housing and Urban Development issued Request
for Proposals No. DU204SA-13-R-0004 (“RFP”), for an indefinite delivery, indefinite quantity
(“IDIQ”) contract seeking field service manager (“FSM”) services for HUD’s single family
Real-Estate Owned (“REO”) properties. AR 1-172. The HUD contracting officer set aside the
procurement partially for small businesses and assigned NAICS code 531311, Residential
Property Managers, with a corresponding size standard of $7 million average annual receipts,
meaning that businesses larger than the size standard would not be eligible to compete. AR 139-
140. The RFP divided HUD’s REO properties into eight geographic contract areas, seven of
which were set aside for small businesses: 1P (Michigan); 3P (Connecticut, Maine,
Massachusetts, Vermont, New Hampshire, New Jersey, New York, and Rhode Island); 4P
(Ohio); 5P (Delaware, Maryland, Pennsylvania, Virginia, and West Virginia); 1D (Colorado,
New Mexico, North Texas, and Utah); 4D (Iowa, Nebraska, South Dakota, and Wisconsin); and
5D (Minnesota, Montana, North Dakota, and Wyoming). AR 152-53. In turn, the contract areas
are within larger regions administered by two of HUD’s four regional Homeownership Centers
(“HOC”) located in Philadelphia, Pennsylvania and Denver, Colorado. AR 16.
The RFP explained that “HUD has a need to manage and sell a sizable inventory of
single-family homes.” AR 16. For each geographic region in which HUD sought to award a
contract, HUD identified seven major functions to be performed by contractors: (1) Pre-
Conveyance Activity; (2) Conveyance Activity; (3) Claim Review Activity; (4) Management
Activity; (5) Marketing Activity; (6) Closing Activity; and (7) Oversight Monitoring. AR 17.
HUD further specified the purposes and objectives for field service management contractors,
including inspecting, securing, repairing, and maintaining the properties. AR 19. The RFP
stated that HUD would award separate, single-award IDIQ contracts, each covering one or more
geographic regions. AR 150.
B. The IEI-Cityside Joint Venture Agreement
Inspection Experts, Inc. (“IEI”) is a participant in the SBA’s 8(a) BD program and
Mentor/Protégé program. Id. Cityside Management Corp. (“Cityside”) is its SBA-approved
mentor. Compl. ¶ 10. As a participant in the 8(a) program, IEI is assigned to the Nebraska
District Office located in Omaha, Nebraska. Id. See 13 C.F.R. § 124.401.
3
On June 9, 2014, IEI and Cityside executed a joint venture agreement for IEI-Cityside
(“the agreement”). AR 1312-19. The agreement stated that, in accordance with the Solicitation,
“[t]he contractor shall perform inspections, preservation, maintenance, and property management
services for HUD-Owned properties and reconveyances.” AR 1314 § 1.0. It further specified
that IEI-Cityside’s responsibilities would include “[i]nitial inspections to confirm whether
property meets conveyance conditions,” “[p]reservation of property from conveyance to sale,”
“[m]aintenance and preparation of properties intended for sale,” “[m]anagement of rental
properties,” and “[m]anagement and maintenance of properties in the custody of, but not owned
by HUD.” Id.
Section 2.0 of the agreement designated Shanthi Dabare, the President of IEI, as the
managing director for IEI-Cityside. The agreement also contained the following provisions
relevant to the issues raised in this case:
6.0 Equipment. Upon award of the contract identified in section 1.0 Purpose,
above, the Managing Director will purchase, in the name of the joint venture,
facilities and equipment for the proper operation of this contract.
....
9.0 Negotiating the Contract. Shanthi M. Dabare will be responsible for
negotiating the original contract, should negotiations be required by HUD.
....
14.0 Specific Responsibilities. 8(a) IEI shall perform fifty percent (50%) of the
total dollar amount of the labor portion of the project, which also consists of labor
and management personnel staff. Cityside Management Corporation shall perform
fifty percent (50%) of the total dollar amount of the labor and management
personnel portion of the project.
Pursuant to 13 CFR 124.513(d), IEI the 8(a) participant shall perform fifty percent
(50%) of the work performed by the joint venture. Work is defined as labor portions
of the project, beyond and not including subcontracted work, consisting of
analytical, technical, and management personnel staff positions.
Cityside Management Corporation, the mentor, shall perform fifty percent (50%)
of the work performed by the joint venture. Work is defined as labor portions of the
project, beyond and not including subcontracted work, consisting of analytical,
technical, administrative or, if waived by the 8(a) participant; management
personnel staff positions.
If labor portions cannot be distributed as listed above due to labor allocations which
do not support a 40/60 delineation of work IEI the 8(a) participant to the joint
venture will have first right of refusal in the final selection of personnel staff
positions. Selections shall be made which aid in their ability to gain knowledge
4
from performance of the contracts and assists in its business development and must
consist of analytical, technical, or management personnel staff positions. The joint
venture partners agree to maintain the 50/50 delineation of work as closely as the
contract staff positions dictate. IEI will not subcontract more than 60% of the work
to Cityside Management Corporation or any other subcontractor, if necessary IEI
will hire employees from Cityside Management Corporation as part of this joint
venture in order to meet the percentage of work split.
15.0 SBA must approve this joint venture prior to award of the FSM 3.8 contract
on behalf of the joint venture.
AR 1315-18 §§ 6.0, 9.0, 14.0, 15.0 (grammatical and punctuation errors in the original).
On June 9, 2014, IEI-Cityside submitted the joint venture agreement to the Nebraska
District Office for approval. Compl. ¶ 12. In addition to the agreement, IEI-Cityside also
submitted a copy of a form provided by the district office titled “Supplemental Information
Checklist.” AR 1320-26. In that form, IEI-Cityside included more detailed information about
the project, including the number and skills of employees supplied to the joint venture by each
venture participant, a brief description of the hiring and employee management responsibilities
of each venturer, and an explanation of how project management would be handled. AR 1325.
In addition, IEI-Cityside included information on the breakdown of work tasks to be performed
by each joint venturer and the ways that the small business partner (IEI) would meet the
performance work requirements. AR 1326.3
C. Contract Award and Size Protests Before the SBA
On July 5, 2015, IEI-Cityside timely submitted its proposal in response to the
Solicitation. Compl. ¶ 11. In the meantime, on August 13, 2014, the Nebraska District Office
approved the joint venture agreement.4 Mot. Prelim. Inj. 8-15, June 29, 2015, ECF No. 19
[hereinafter “Pl.’s Br.”]. On September 30, 2014, the contracting officer selected IEI-Cityside
for award of contract areas 1P, 4P, and 5P (all areas within the Philadelphia, Pennsylvania HOC
region for which IEI-Cityside entities were incumbent contractors). AR 407, 531, 656.
3
For example, IEI-Cityside stated that “IEI will be responsible for the functional
oversight and management of the daily operations and contract supplying Key Personnel to meet
these required functions.” Id. In addition, “IEI will retain control of finance tracking and
accounting functions as required by the [joint venture] Agreement. All other staff positions will
be a mixed group of both IEI and Cityside staff to ensure that all functions and efficiencies are
learned.” Id.
4
As described above, because the procurement was not to be awarded through the 8(a)
BD program, the district office’s prior approval was not required under the SBA regulations,
and—given the size protests later filed by IEI-Cityside’s competitors—was of no consequence.
See 13 C.F.R. § 121.103(h)(3)(iii).
5
On October 3, 2014, MRAP, LLC d/b/a Market Ready Services, an unsuccessful offeror,
filed a size protest against IEI-Cityside with the contracting officer. AR 791-97, 902-42. On
October 6, 2014, A2Z Field Services and Atlas Field Services, two other unsuccessful offerors,
also filed size protests against IEI-Cityside. AR 797.1-797.44, 836-900. The three protests were
referred to SBA’s Office of Government Contracting – Area II in King of Prussia, Pennsylvania
(Area Office). AR 836, 860, 902.
On March 12, 2015, the Area Office issued Size Determination Nos. 2-2015-13/14/15,
concluding that IEI and Cityside are affiliated for the procurement at issue, and that therefore
IEI-Cityside did not qualify as a small business for the procurement. AR 1045-59. The Area
Office noted that IEI and Cityside were parties to an SBA-approved mentor/protégé agreement,
and that IEI-Cityside was competing for a procurement outside the 8(a) BD program. AR 1051.
The Area Office explained that parties to a joint venture ordinarily are affiliated with each other
with regard to the performance of such a contract (which normally prevents the joint venture
from being eligible in a case like this one in which one of the joint venture partners is undeniably
not small). AR 1051-52 (citing 13 C.F.R. § 121.103(h)(3)(iii)).
The Area Office found that IEI-Cityside did not qualify for the mentor-protégé exception
because its joint venture agreement did not comply with 13 C.F.R. § 124.513(c) and (d). AR
1052. In particular, the Area Office determined that the agreement—which simply stated that
“[u]pon award of the contract . . ., the Managing Director will purchase, in the name of the joint
venture, facilities and equipment for the proper operation of this contract”—did not comply with
the regulatory requirement that it include an itemization of all major equipment, facilities, and
other resources to be furnished by each joint venture partner, with a detailed schedule of cost or
value of each. AR 1053 (quoting 13 C.F.R. § 124.513(c)(6)). In that regard, it cited the decision
of the SBA’s Office of Hearings and Appeals (“OHA”), the agency’s highest adjudicative
authority, in Kisan-Pike, a Joint Venture, SBA No. SIZ-5618 (Nov. 24, 2014), 2014 WL
6904349 (2014). In Kisan-Pike, the SBA had ruled that a similarly broad statement lacked the
specificity necessary to comply with section 124.513(c)(6). 2014 WL 6904349.
Further, the Area Office determined that the IEI-Cityside joint venture agreement did not
specify IEI’s and Cityside’s respective responsibilities as required by section 124.513(c)(7). AR
1053. It observed that the joint venture agreement had simply provided that IEI’s president
would negotiate the contract, but otherwise was so ambiguous about the respective
responsibilities of the parties that it was not clear from the agreement how IEI-Cityside would
meet the work requirements set forth in section 124.513(d). AR 1053.
Citing the IEI-Cityside joint venture agreement’s failure to meet the section 124.513(c)
and (d) criteria, the Area Office concluded that IEI and Cityside (1) did not qualify for the
section 121.103(h)(3)(iii) exception from affiliation; (2) were thus affiliated under section
121.103(h)(2); and therefore (3) did not constitute an eligible small business for the procurement.
AR 1053-54. The Area Office also determined, based on an analysis of extensive financial
information that IEI, Cityside, and the joint venture had provided, that IEI in any event did not
qualify as small based on its receipts and proportionate share of various joint ventures. AR
1054-58.
6
Subsequently, on March 30, 2015, IEI-Cityside filed an appeal of the size determination
with OHA. AR 4979-5015. OHA rendered a decision on June 16, 2015, sustaining the Area
Office’s size determination and concluding that the size determination did not contain a clear
error of fact or law. AR 5064-77. OHA’s decision focused on the issues concerning the alleged
failure of IEI-Cityside’s joint venture agreement to comply with 13 C.F.R. § 124.513(c) and (d)
and did not reach the issue of whether IEI itself would qualify as a small business given its
receipts and share in other joint ventures.
Specifically, OHA agreed with the Area Office that IEI-Cityside’s representation that
IEI’s president “will, in the future, purchase facilities and equipment for [IEI-Cityside] does not
suffice to meet the requirement that the agreement ‘[i]temiz[e] all major equipment, facilities,
and other resources to be furnished by each party to the joint venture, with a detailed schedule of
cost or value of each.’” AR 5075 (quoting 13 C.F.R. § 124.513(c)(6)). OHA further determined
that “the statement that IEI and Cityside each will perform 50% of [the] total dollar value of the
labor portion of the contract does not meet the requirement to ‘[s]pecify[] the responsibilities of
the parties with regard to . . . contract performance, including ways that the parties to the joint
venture will ensure that the joint venture and the 8(a) partner(s) to the joint venture will meet the
performance of work requirements set forth in paragraph (d) of this section.’” AR 5075 (quoting
13 C.F.R. § 124.513(c)(7)). OHA elaborated that IEI-Cityside’s joint venture agreement “does
not designate specific tasks or responsibilities to IEI and Cityside, and fails to explain how [IEI-
Cityside] will fulfill the performance of work requirements set out in 13 C.F.R. § 124.513(d).”
AR 5075. Hence, it concluded that the IEI-Cityside joint venture agreement “contains highly
general statements, but lacks the specificity required by 13 C.F.R. §§ 124.513(c) and (d).” AR
5075.
In addition, noting that the situation presented in this case was analogous to that at issue
in Kisan-Pike, OHA rejected IEI-Cityside’s claim that the nature of the contract in this case
made it too difficult to provide the information required by the regulations. AR 5074-75. First,
OHA explained, there is no exception to the regulatory requirements for “situations where a joint
venture may have difficulty providing detailed information.” AR 5075 (quoting Kisan-Pike,
2014 WL 6904349, at *9). Second, and in any event, OHA determined, the record did not
support IEI-Cityside’s contention that it was impossible for IEI-Cityside to have met those
requirements because the RFP had described the types of work to be performed, and IEI-Cityside
had summarized the types of work in its agreement. AR 5075. Thus, although IEI-Cityside
would not have known which geographic regions or properties it would be managing at the time
the agreement was signed it could have complied with § 124.513(c) and (d) “by discussing the
types of work each joint venture partner would perform, and the resources each partner would
contribute, for each region awarded to [IEI-Cityside].” AR 5075.
D. This Bid Protest
IEI-Cityside filed a bid protest in this Court on June 29, 2015 to challenge the SBA’s
decision. It contends that the SBA’s decision was arbitrary, capricious, and contrary to law,
claiming that the joint venture agreement: (1) provided sufficient specificity with regard to the
parties’ contributions of major equipment, facilities, and other resources furnished by each; (2)
was adequately specific as to the responsibilities of the parties with regard to negotiation of the
7
contract, source of labor, and contract performance; and (3) specified with certainty that IEI
would be performing at least 40% of the joint venture’s work. Pl.’s Br. 8-15. According to IEI-
Cityside, given the IDIQ nature of the procurement, and the fact that IEI-Cityside did not know
which geographic regions it would be awarded, it would have been impossible to provide any
greater level of specificity in the agreement. Id. at 12.
To expedite a decision on the merits, and with the consent of the parties, the Court issued
an order on July 2, 2015 that it would treat IEI-Cityside’s motion for a preliminary injunction as
a motion for judgment upon the administrative record. The government then filed its response to
plaintiff’s brief and its cross-motion for judgment on the administrative record. After additional
responsive briefs were filed, oral argument on the parties’ cross-motions was held on August 4,
2015.
DISCUSSION
I. Jurisdiction
The Court of Federal Claims has “jurisdiction to render judgment on an action by an
interested party objecting to . . . a proposed award or the award of a contract or any alleged
violation of statute or regulation in connection with a procurement or a proposed procurement.”
28 U.S.C. § 1491(b)(1) (2012). A party is an “interested party” with standing to bring suit under
28 U.S.C. § 1491(b)(1) if the party “is an actual or prospective bidder whose direct economic
interest would be affected by the award of the contract.” Orion Tech., Inc. v. United States, 704
F.3d 1344, 1348 (Fed. Cir. 2013). An offeror has a direct economic interest if it suffered a
competitive injury or prejudice. Myers Investigative & Sec. Servs., Inc. v. United States, 275
F.3d 1366, 1370 (Fed. Cir. 2002) (holding that “prejudice (or injury) is a necessary element of
standing”).
In this case, IEI-Cityside objects to the SBA’s determination that IEI and Cityside are
affiliated, and that, therefore, IEI-Cityside does not qualify as a small business for the purposes
of the HUD procurement. IEI-Cityside claims that the SBA violated its own regulations in
rendering its size determination. Accordingly, this case involves an allegation that there has
been a violation of a statute or regulation in connection with a procurement within the meaning
of 28 U.S.C. § 1491(b)(1). See Palladian Partners, Inc. v. United States, 783 F.3d 1243, 1254
(Fed. Cir. 2015) (recognizing CFC’s jurisdiction over challenges to OHA’s NAICS
determination in connection with a procurement).
Further, IEI-Cityside is clearly an interested party. It is an actual bidder whose direct
economic interest has been affected by the SBA’s decision. IEI-Cityside was awarded HUD
contracts for three of the areas for which it submitted offers. As a result of the SBA’s decision,
however, IEI-Cityside has been excluded from the competition. It has therefore suffered
competitive injury or prejudice for purposes of establishing its standing under 28 U.S.C. §
1491(b)(1).
8
II. Motion for Judgment on the Administrative Record
A. Standard for Granting Judgment on the Administrative Record
Pursuant to RCFC 52.1, the court reviews an agency’s procurement decision based on the
administrative record. Axiom Res. Mgmt., Inc. v. United States, 564 F.3d 1374, 1379 (Fed. Cir.
2009). Thus, to resolve a motion for judgment on the administrate record, the court conducts an
expedited trial on the paper record, making fact findings where necessary. Bannum, Inc. v.
United States, 404 F.3d 1346, 1354 (Fed. Cir. 2005). The court’s inquiry is “whether, given all
the disputed and undisputed facts, a party has met its burden of proof based on the evidence in
the record.” A&D Fire Prot., Inc. v. United States, 72 Fed. Cl. 126, 131 (2006) (citing Bannum,
Inc., 404 F.3d at 1356). Unlike a summary judgment proceeding, genuine issues of material fact
will not foreclose judgment on the administrative record. Bannum, Inc., 404 F.3d at 1356.
B. Standard of Review in Bid Protest Cases
The standard of review used to evaluate agency decisions in bid protest cases is the same
as the standard used to evaluate agency action under the Administrative Procedure Act (“APA”),
5 U.S.C. § 706 (2012). See 28 U.S.C. § 1491(b)(4) (stating that “[i]n any action under this
subsection, the courts shall review the agency’s decision pursuant to the standards set forth in
section 706 of title 5”). To successfully challenge an agency’s procurement decision, a plaintiff
must show that the decision was “arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A); Bannum, Inc., 404 F.3d at 1351. “The arbitrary
and capricious standard applicable here is highly deferential. This standard requires a reviewing
court to sustain an agency action evincing rational reasoning and consideration of relevant
factors.” Advanced Data Concepts, Inc. v. United States, 216 F.3d 1054, 1058 (Fed. Cir. 2000)
(citing Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974)).
In this case, the agency decision under review is that of the SBA, speaking through its
Office of Hearings and Appeals. See 13 C.F.R. § 134.316(d) (decision of the OHA is the final
decision of the SBA). Further, the issue under review involves the SBA’s interpretation and
application of its own regulations, which it promulgated pursuant to statutory authority. IEI-
Cityside’s burden to secure reversal of the OHA’s determination is therefore a particularly
difficult one, as an agency’s interpretation of its own regulations is “controlling unless ‘plainly
erroneous or inconsistent with the regulation.’” Auer v. Robbins, 519 U.S. 452, 461 (1997)
(citing Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 359 (1989) (quoting Bowles
v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945))). For the reasons set forth below, the
Court concludes that IEI-Cityside has failed to meet that burden or otherwise show that the
agency’s decision was arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.
C. Application of the Legal Standards
The SBA concluded that the joint venture agreement between IEI and Cityside did not
meet the requirements of 13 C.F.R. § 124.513 (c)(6), (c)(7) or (d) and that therefore the joint
venture did not qualify for the exception to affiliation set forth in 13 C.F.R. § 121.103(h)(3)(iii).
9
See also 13 C.F.R. § 124.520(d)(1)(ii) (“In order to receive the exclusion from affiliation for
both 8(a) and non-8(a) procurements, the joint venture must meet the requirements set forth in
§ 124.513(c).”). This conclusion—which concerns matters that are squarely within the scope of
the SBA’s discretion and expertise—was plainly reasonable and consistent with the regulations.
Section 124.513(c)(6) required that IEI-Cityside’s joint venture agreement contain a
provision “[i]temizing all major equipment, facilities, and other resources to be furnished by
each party to the joint venture, with a detailed schedule of cost or value of each.” With respect
to this requirement, IEI’s joint venture agreement stated that “[u]pon award of the contract
identified in section 1.0 Purpose, above, the Managing Director will purchase, in the name of the
joint venture, facilities and equipment for the proper operation of this contract.” AR 1315.
According to plaintiff, this clause satisfied the criterion set forth in 13 C.F.R. § 124.513 (c)(6) by
providing that “all equipment and resources essentially would be contributed or ‘furnished’ by
IEI, the Managing Director.” Pl.’s Br. 10.
This contention is not persuasive. First, the joint venture agreement does not state that
IEI will furnish all equipment, facilities and resources; instead, it states that IEI, as managing
director, will purchase such materials “in the name of the joint venture.” But more importantly,
even assuming it were reasonable to read the agreement to mean that IEI would be supplying all
equipment, facilities, and resources, IEI-Cityside does not deny that the agreement did not
include the other information required by the regulation: an itemization and detailed schedule of
the costs of such equipment, facilities, and resources. Accordingly, OHA’s determination that
IEI-Cityside’s agreement did not meet the requirements of 13 C.F.R. § 124.513(c)(6) is clearly
reasonable.
Similarly, the OHA’s conclusion that IEI Cityside’s joint venture agreement did not
comply with 13 C.F.R. § 124.513(c)(7) was also entirely reasonable. That regulation required
that IEI-Cityside’s joint venture agreement to contain a provision “[s]pecifying the
responsibilities of the parties with regard to negotiation of the contract, source of labor, and
contract performance, including ways that the parties to the joint venture will ensure that the
joint venture and the 8(a) partner(s) to the joint venture will meet the performance of work
requirements set forth in paragraph (d) of this section” (which delineates the percentage of work
that each joint venture partner must complete in the course of contract performance).
The IEI-Cityside joint venture agreement did not contain any of this specific information,
with the exception of stating that IEI’s President would negotiate the contract. Beyond that, as
set forth above, the agreement stated only in very general and conclusory terms that IEI and
Cityside would each perform fifty percent of the labor under the contract, and that IEI would
have a right of first refusal as needed to meet the minimum work requirements set forth in the
regulations. OHA reasonably concluded that these general statements were inadequate to meet
regulatory requirements because the agreement “does not designate specific tasks or
responsibilities to IEI and Cityside and fails to explain how [IEI-Cityside] will fulfill the
performance of work requirements of 13 C.F.R. § 124.513(d).” AR 5075.
Notwithstanding the foregoing, IEI-Cityside argues that at the time it entered the
agreement it could not have provided greater specificity with respect to facilities, equipment and
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other resources, or as to the allocation of the parties’ responsibilities with respect to contract
performance. It contends that “[n]o specific ‘itemization’ of the equipment and facilities was
possible at the time of proposal submission” because of the IDIQ nature of the procurement and
because it did not know the geographic regions to which it would be assigned. Pl.’s Br. 10, 14;
see Pl.’s Reply 6-11. Indeed, it argues, “the very language of the Solicitation itself provides for
lengthy transition, during which the contract awardee is charged with the responsibility of
furnishing the materials and facilities necessary for contract performance.” Pl.’s Reply 8.
The SBA’s conclusion that IEI-Cityside’s “impossibility” argument was unavailing was
reasonable for two independent reasons. First, as OHA observed, the regulations do not include
an exception based on the nature of the procurement involved. See 13 C.F.R. § 124.513(c);
Kisan-Pike, 2014 WL 6904349, at *9 (noting that the applicable regulations do not authorize an
exception for situations where a joint venture may have difficulty providing detailed
information). Indeed, carving out exceptions on this basis could undermine the SBA’s purposes
for imposing mandatory provisions on joint venture agreements and for requiring SBA approval
of such agreements: to ensure that the 8(a) (or other small business) concern is bringing
sufficient value to the joint venture relationship and that the relationship is genuine. See 13
C.F.R. § 124.513(a)(2) (providing that a “joint venture agreement is permissible only where an
8(a) concern lacks the necessary capacity to perform the contract on its own, and the agreement
is fair and equitable and will be of substantial benefit to the 8(a) concern,” but cautioning that
“where SBA concludes that an 8(a) concern brings very little to the joint venture relationship in
terms of resources and expertise other than its 8(a) status, SBA will not approve the joint venture
arrangement”); see also 76 Fed. Reg. 8222 (“Receiving an exclusion from affiliation for any non-
8(a) contract is a substantial benefit that only SBA-approved mentor/protégé relationships can
receive. The intent behind the exclusion generally is to promote business development
assistance to protégé firms from their mentors. Without [the requirements of section (c)], the
entire small business contract could otherwise be performed by an otherwise large business.”).
Second, and in any event, as OHA discerned, the fact that this matter involves an IDIQ
contract and that IEI-Cityside did not know the geographic region to which it might be assigned
did not preclude IEI-Cityside from providing more specificity regarding the equipment, facilities,
and other resources that each party would contribute, or adequate information about allocations
of responsibility. The “indefinite” aspect of this procurement was the number of properties that
the contractor would manage. As OHA observed, notwithstanding this uncertainty about the
number of properties or the geographic region for which the award would be made, IEI-Cityside
“might nevertheless have complied with 13 C.F.R. § 124.513(c) and (d) by discussing the types
of work each joint venture partner would perform, and the resources each partner would
contribute, for each region awarded to Appellant.” AR 5075.5
Indeed, the record in this matter reveals that IEI-Cityside could readily have provided
additional specificity in its agreement. According to the administrative record, both IEI and
5
It also bears noting that IEI-Cityside’s complaint that specificity was impossible
because it did not know in advance which of several geographic areas it might be awarded would
apply to any procurement (IDIQ or not) in which an agency was awarding more than one
contract in different geographic areas—a very common occurrence.
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Cityside are incumbent HUD contractors with experience in performing field service
management contracts. AR 383. IEI-Cityside emphasized in the past performance portion of its
proposal that it is comprised of “two experienced HUD FSM contractors” and noted the tens of
thousands of HUD properties its member entities have managed across multiple states. Id. IEI-
Cityside also stated that “[a]s current FSM contractors, both Cityside and IEI have the
infrastructure and personnel that can be assigned to the joint venture to perform the services
required in areas 1D, 4D, 5D, 1P, 3P, 4P, 5P.” Id. IEI-Cityside elaborated that “IEI currently
has an active pool of subcontractors in area 1P. Cityside currently maintains a pool of
subcontractors in area[s] 1P, 3P, 4P and 5P.” Id. IEI-Cityside then went on to explain its plans
for acquiring additional infrastructure based on its extensive experience, culminating in its
assertion that “[i]f it is awarded the FSM 3.8 contract IEI-Cityside JV will be ready to perform
from day one and will not require a lengthy transition period.” AR 383; But cf. Pl.’s Br. 11, 14
(claiming that the transition period establishes impossibility of complying with regulations).
Given these representations, and each of the joint partners’ experience, IEI-Cityside necessarily
would have had a much greater appreciation of what each partner would be contributing in terms
of equipment, facilities, labor and other resources at the time it entered its agreement.
IEI-Cityside’s impossibility claims are also contradicted by its technical proposal, in
which IEI-Cityside asserted that “the Firm has existing fully staffed and equipped offices located
within the Denver and Philadelphia HOC geographic area” aswell as overarching computer
systems for the contracts. AR 358. The technical proposal also included a lengthy “Property
Management Work Flow,” complete with detailed charts and narratives that specified the types
of work that IEI-Cityside would perform if it were awarded the contracts. AR 360-77. IEI-
Cityside claimed that its pre-existing resources and coverage “will allow the Firm to provide
timely and efficient services to HUD from day one.” AR 360.
In addition, in submitting the joint venture agreement to the SBA district office in
Nebraska, IEI-Cityside provided additional information on a form checklist—not included in the
agreement itself—stating that it had existing personnel, equipment, and “facilities already in use
that will be used for this contract with several other offices ready to perform the contract.” AR
1323. IEI-Cityside also provided “[a] breakdown of work tasks to be performed by each joint
venturer.” See AR 1326.
The record, in short, demonstrates that IEI-Cityside was capable of providing specifics
that it did not include in the agreement. OHA fully considered this record, as well as IEI-
Cityside’s arguments. OHA’s interpretation of SBA’s regulations and the application of those
regulations to the specific circumstances of this case is entitled to substantial deference. OHA
provided a reasoned and logical explanation for why the Area Office determination did not
constitute clear error. Accordingly, the SBA’s decision that the joint venture agreement failed to
meet the requirements of 13 C.F.R. § 124.513(c) and (d) was neither arbitrary, capricious, nor
contrary to law.
CONCLUSION
On the basis of the foregoing, the government’s motion for judgment on the
administrative record is GRANTED and the plaintiff’s motion is DENIED. Pursuant to the
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joint status report filed on August 24, 2015, ECF No. 27, the briefs filed in this matter shall be
released as the public versions of those filings except for the exhibits filed as attachments to
plaintiff’s complaint (ECF No. 1) and motion for a preliminary injunction (ECF Nos. 2 and 3).
IT IS SO ORDERED.
s/ Elaine D. Kaplan
ELAINE D. KAPLAN
Judge
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