cr/zws, LLC v. United States

In the United States Court of Federal Claims

BID PROTEST

No. 18-271C

(Filed Under Seal: May 16, 2018 | Reissued: June 4, 2018)*

) Keywords: Bid Protest; Small Business

CR/ZWS LLC, ) Administration; 8(a) Business

) Development Program; Joint Venture

Plaintiff, ) Agreements.

)

v. )

)

THE UNITED STATES OF AMERICA, )

)

Defendant, )

)

and )

)

VMX INTERNATIONAL, LLC, )

)

Defendant-Intervenor. )

)

Megan C. Connor, PilieroMazza PLLC, Washington, D.C., for Plaintiff. Kathryn V. Flood,

Patrick T. Rothwell, and Kathryn M. Kelley, PilieroMazza PLLC, Washington, D.C., Of Counsel.

Kristin B. McGrory, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S.

Department of Justice, Washington, D.C., for Defendant, with whom were L. Misha Preheim,

Assistant Director, Robert E. Kirschman, Jr., Director, and Chad A. Readler, Acting Assistant

Attorney General.

Nicholas T. Solosky, Fox Rothschild LLP, Washington, D.C., for Defendant-Intervenor.

*

In its initial filing of this opinion and order, the Court gave the parties the opportunity to

request redactions. The government did not propose any, but CR/ZWS LLC requested numerous

redactions throughout the opinion. The Court concludes, however, that almost all of the portions

of the opinion that CR/ZWS seeks to redact are not competition-sensitive or otherwise

protectable, and that their redaction would make portions of the Court’s opinion difficult to

understand. Therefore, with the exception of one third-party individual’s name, the Court rejects

CR/ZWS’s requests and reissues the opinion.

OPINION AND ORDER

KAPLAN, Judge.

This case involves a protest of the United States Army’s award of a contract for refuse

and recycling services. The procurement was open only to small businesses participating in the

Small Business Administration’s (SBA) 8(a) Business Development Program. Plaintiff CR/ZWS

LLC is a joint venture composed of Charitar Realty (Charitar), a program participant, and Zero

Waste Solutions, Inc. (ZWS), the incumbent contractor and a graduate from the 8(a) program.

Joint ventures that include an 8(a) participant, like CR/ZWS, must secure SBA approval

of the arrangement between the joint venturers to be eligible for 8(a) procurements. Here,

although CR/ZWS was declared the apparent awardee in the Army’s procurement, the SBA

ultimately refused to approve an amendment to the joint venture agreement that Charitar

submitted in connection with the procurement. In particular, the SBA determined that the joint

venture agreement, as amended, was not fair and equitable, and that Charitar brought little to the

relationship other than its 8(a) status. As a result, the SBA concluded that the joint venture

arrangement could not be approved under 13 C.F.R. § 124.513(a)(2). The Army therefore

awarded the contract to Defendant-Intervenor VMX International, LLC (VMX), the next lowest

bidder. CR/ZWS, in turn, filed this bid protest, challenging the SBA’s adverse determination

with respect to its proposed amendment, as well as the Army’s award to VMX.

Currently before the Court are CR/ZWS’s and the government’s cross-motions for

judgment on the administrative record. For the reasons set forth below, CR/ZWS’s motion for

judgment on the administrative record is DENIED and the government’s cross-motion for

judgment on the administrative record is GRANTED.

BACKGROUND

I. The Solicitation

On July 11, 2017, the United States Army’s Mission and Installation Contracting

Command at Ft. Riley, Kansas issued an invitation for bids for a fixed price requirements

contract to provide refuse and recycling services at Ft. Riley. Admin. R. (AR) Tab 30 at 167–71,

205. Specifically, the Army was seeking a contractor to “provide all personnel, equipment, tools,

materials, vehicles, supervision, and other items and services necessary to perform refuse and

recycling services.” Id. at 170. The winning contractor would also operate the construction and

demolition landfill at the fort. Id. at 171; id. Tab 14 at 103.

2

The acquisition was designed as a 100% set-aside for participants in the SBA’s 8(a)

Business Development Program,1 with a size standard of $38,500,000.2 Id. Tab 30 at 167.

Interested parties were required to submit sealed bids to the Army prior to August 10, 2017. Id.

at 207. The Army would open the sealed bids on August 10, and ultimately award the contract to

the “lowest overall priced responsible bidder.” Id.; see also id. at 210 (“The Contracting Officer

shall make a contract award . . . to the responsible bidder whose bid . . . will be most

advantageous to the Government, considering only price and the price-related factors included in

the invitation.”). The award would not be made, however, until the Army obtained “all required

approvals” and the award was in conformance with FAR 14.103-2. Id. at 210.

The solicitation stated that in evaluating price and price-related factors, the contracting

officer would determine whether the “prices offered [we]re fair and reasonable before awarding

the contract.” Id. at 211. The contracting officer was also required to consider whether bids were

materially unbalanced in accordance with FAR 15.404-1, and could apply the price analysis

techniques contained in that provision. Id. Finally, in accordance with the fact that the contract

was set aside for 8(a)-eligible businesses, the solicitation provided that the successful bidder

must be a participant in the SBA’s 8(a) business development program. See id. at 197.

II. The Joint Venture

A. The Original Joint Venture Agreement

As noted, CR/ZWS LLC is a joint venture between Charitar and ZWS. Id. Tab 82 at 676.

Charitar is a real estate, janitorial, and property maintenance firm certified by the SBA as an 8(a)

business development participant. Id. at 678; see also id. Tab 100 at 804. ZWS is a “graduate” of

the SBA’s 8(a) business development program and is the incumbent contractor for refuse and

recycling services at Ft. Riley. Id. Tab 83 at 680; id. Tab 100 at 804.

A joint venture that includes an 8(a) participant, like CR/ZWS, is eligible to pursue an

8(a) contract if the SBA approves its joint venture agreement for the performance of that

contract.3 13 C.F.R. § 124.513(a)(1). On July 21, 2016, Charitar accordingly submitted its joint

1

Section 8(a) of the Small Business Act authorizes the small business development program. See

13 C.F.R. § 124.1 (2017); see also 15 U.S.C. § 637(a) (Supp. IV 2016). “The purpose of the 8(a)

[business development] program is to assist eligible small disadvantaged business concerns [in]

compet[ing] in the American economy through business development.” 13 C.F.R. § 124.1.

Qualifying small business concerns are admitted to the program as participants for a term of up

to nine years. Id. § 124.2. Upon successful completion, participants “graduate” from the 8(a)

program. See id. § 124.302.

2

“SBA’s size standards 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).

3

Where a joint venture involving an 8(a) participant seeks to perform additional 8(a) contracts

after the SBA has already approved its joint venture agreement for a specific contract, it must

3

venture agreement with ZWS to the SBA for approval in order to bid on a solicitation issued by

the Department of Homeland Security. See AR Tab 82 at 676; see also id. Tab 82.1 at 679.1–

679.17. The SBA approved the CR/ZWS joint venture agreement on September 14, 2016. Id.

Tab 82.2 at 679.18; see also id. Tab 100 at 804. Since that time, the SBA has also approved four

amendments to the agreement that CR/ZWS submitted “for the purpose of bidding on successive

8(a) BD contracts.” Id. Tab 100 at 804.

B. Proposed Amendment 5 to the Joint Venture Agreement

On August 10, 2017, at approximately the same time that CR/ZWS submitted its bid for

the procurement at issue in this case, it submitted Amendment 5 to its joint venture agreement to

the SBA for approval. See id. Tab 87 at 703–08; see also id. Tab 90 at 721. Consistent with 13

C.F.R. § 124.513, the amendment specifically addressed the provision of services and the

division of responsibilities in the event that the Army awarded the Ft. Riley contract to CR/ZWS.

Id. Tab 87 at 703–08.

Amendment 5 contained a description of the equipment, facilities and other resources that

would be furnished by each venturer, consistent with 13 C.F.R. § 124.513(c)(6). Specifically, it

provided that Charitar would supply the joint venture with “office equipment[] such as desktops,

laptops, printers, uniforms, labor, supplies and cell phones” at a total estimated value of $50,000.

Id. at 703–04. It would also provide “local office space, supplies, uniforms, and [personal

protective equipment].” Id. at 704. ZWS, on the other hand, would provide “service equipment[]

and vehicles” with a total estimated value of $650,000. Id.

Additionally, pursuant to 13 C.F.R. § 124.513(c)(2), the proposed amendment specified

that [***], who was then an employee of Shell Soft, Inc., would become an employee of Charitar

and serve as the project manager for the potential Ft. Riley contract. Id.; see also 13 C.F.R.

§ 124.513(c)(2) (requiring that the joint venture agreement “[d]esignat[e] . . . an employee of

[the] 8(a) Participant as the project manager responsible for performance of the contract”). Under

§ 124.513(c)(2), “[t]he individual identified as the project manager of the joint venture need not

be an employee of the 8(a) Participant at the time the joint venture submits an offer, but, if he or

she is not, there must be a signed letter of intent that the individual commits to be employed by

the 8(a) Participant if the joint venture is the successful offeror.” Charitar did not, however,

include any letter of intent to employ [***] with its submission to the SBA, see AR Tab 87; see

also id. Tab 90; but it has attached to its complaint a copy of such a letter (dated July 12, 2017),

Compl. Ex. D, ECF No. 1.

The amendment also specified that Charitar would supply four other full-time-equivalent

employees in addition to the project manager. AR Tab 87 at 708. These employees would serve

as quality control manager, quality control inspector, scale operator, and landfill operator, and

collectively with the project manager would perform 9,360 annual hours under the contract out

submit for the SBA’s approval addenda to the joint venture agreement that address those

additional contracts. 13 C.F.R. § 124.513(e)(2).

4

of a total of 13,520 annual hours. AR Tab 87 at 708. The remaining annual hours would be

performed by two full-time equivalents, heavy truck drivers, employed by ZWS. Id.

With respect to staffing generally, the amendment provided that Charitar and ZWS would

each hire new employees for performance of the contract, and would do so “in accordance with

the requirement under Executive Order 13495 to provide a right of first refusal to the incumbent

contract personnel.”4 Id. at 704. Further, in order to comply with SBA regulations, Charitar and

ZWS agreed that Charitar “must perform at least forty percent (40%) of the work performed by

the Joint Venture and its work must be more than administrative or ministerial functions so [that

it] gains substantive experience.” Id. at 705.

Finally, the amendment specified that Charitar would “provide overall executive

oversight and [would] have overall responsibility for managing the . . . Contract.” Id. It would

also “perform major contract functions including workforce management, recycling services,

contract administration, union negotiations[,] and monthly contract report[s].” Id. ZWS would

“perform refuse collection and provide service equipment[].” Id.

III. The SBA Initially Verifies Charitar’s Eligibility for the Award

The Army received three sealed bids in response to its invitation, including one from

CR/ZWS and one from VMX. Id. Tab 37 at 261. It opened the sealed bids on August 10, 2017.

See id. At that time, the Army noted that CR/ZWS was the apparent low bidder. Id.; see also id.

Tab 38 at 262. VMX was second. Id. Tab 38 at 262.

Following the opening of the sealed bids, the Army’s contracting officer emailed the

SBA’s Fresno District Office on August 11, 2017, to verify the “eligibility of a joint venture

between Zero Waste Solutions and Charitar Realty . . . for the refuse contract for Fort Riley,

KS.” Id. Tab 42 at 396. That same day, the SBA’s Fresno Office responded with a confirmation

of the joint venture’s eligibility for the contract award. Id. at 395; id. Tab 43 at 397.5

IV. VMX’s Protests

Notwithstanding the SBA’s eligibility determination, the contracting officer did not move

forward immediately with a price analysis, determination of responsibility, or award of the

4

Executive Order 13,495 requires a subsequent contractor who receives a follow-on contract for

the same or similar services in the same location to provide a right of first refusal for

employment to the non-managerial and non-supervisory employees of the previous contractor.

Exec. Order No. 13,495, 74 Fed. Reg. 6,103 (Jan. 30, 2009).

5

The notification was provided in what appears to be a standardized form that was executed and

signed by an SBA Economic Development Specialist in the Fresno District Office. AR Tab 43 at

397. That specialist checked the box entitled “MEETS ELIGIBILITY,” which stated that “[t]he

firm named above [i.e., CR/ZWS] meets the 8(a) Program Eligibility requirements, [North

American Industry Classification System (NAICS)] code size standard requirements, and is

eligible for award.” Id. It is unclear from the document to what extent the SBA considered

Amendment 5 (submitted only the evening before) in making its eligibility determination.

5

contract to CR/ZWS. See id. Tab 64 at 569. Instead, the remaining steps were put on hold

because of protests filed by unsuccessful bidder VMX. One was a size protest filed with the

Army and referred to the SBA, and the others were two bid protests, one filed with the Army and

another with the Government Accountability Office (GAO).

In its size protest, filed on August 17, 2017, VMX argued that CR/ZWS was not eligible

for award under the SBA’s 8(a) business development program because, among other reasons,

ZWS allegedly exceeded the procurement’s size standard. Id. Tab 45 at 401. The Army

forwarded VMX’s size protest to the SBA’s Area Office of Government Contracting on August

21, 2017. Id. Tab 56 at 462 n.2. On September 5, 2017, however, the SBA advised the Army that

it would not decide VMX’s size protest until after the Army decided VMX’s agency-level bid

protest. Id. at 463–64.

In the meantime, on August 18, 2017, VMX submitted a bid protest to the Army,

challenging the proposed award to CR/ZWS on the ground that CR/ZWS was “not responsible to

perform the work.” Id. Tab 55 at 444. On October 30, 2017, the Army denied this protest,

finding it premature because the Army had not yet conducted any price or responsibility analysis

and had not actually awarded the contract to CR/ZWS. Id. Tab 56 at 465.

Finally, on November 9, VMX filed a similar bid protest with GAO. Id. Tab 57 at 469. It

alleged that CR/ZWS was not responsible or eligible for award because it had violated certain

SBA regulations in submitting its bid; because its price was unbalanced, unreasonable, and

unrealistic; and because it lacked the necessary corporate infrastructure for performance. Id. Tab

58 at 472–73.

On December 6, 2017, GAO “dismiss[ed] the protest as premature because it merely

anticipate[d] improper action that ha[d] not yet taken place.” Id. Tab 65 at 570. GAO relied upon

the lack of any price or responsibility analysis and the ongoing SBA size protest to conclude that

“there [was] no basis for [it] to consider VMX’s protest.” Id. at 571.

V. The SBA’s Consideration and Rejection of Amendment 5

In the meantime, while the protests were pending, Charitar communicated with the SBA

on several occasions in October and November 2017 regarding the status of its August 10, 2017

request for approval of Amendment 5. See id. Tab 91 at 731 (November 3, 2017 email from

Charitar to SBA referencing October phone call with SBA concerning status of approval

request); id. Tab 92 at 735 (email from Charitar to SBA seeking “update for the amendment

#5”). On December 28, 2017, the SBA followed up, sending Charitar an email requesting a link

to the relevant solicitation as well a copy of Charitar’s most recent business plan “[t]o coincide

with . . . JV Amendment[] 5.” Id. Tab 93 at 740. The record does not include any response to the

SBA’s request by Charitar.

On January 17, 2018, the Acting District Director of SBA’s Fresno District Office wrote

to Charitar’s president advising her that SBA was rejecting Amendment 5. Id. Tab 67 at 574–75.

She stated that after performing “a thorough review of the information [Charitar] submitted for

approval of Amendment #5,” the SBA had concluded that the amendment “raise[d] questions of

6

control and technical requirements.” Id. at 574. The letter cited several grounds for the SBA’s

decision.

First, the SBA observed that under the amendment, ZWS would “provide all the

equipment needed to deliver the contract valued at $650,000,” while Charitar would “provide all

the equipment to administer the contract valued at $50,000.” Id. According to the SBA, “this

division of provided equipment” suggested that the 8(a) participant, Charitar, was not “investing

equitable portions [in] the JV.” Id.

Second, the SBA asserted that under the proposed amendment, the project manager on

the contract would be an employee of ZWS. Id. This was problematic, according to the SBA,

because the project manager had been given the authority to negotiate the contract. Id. Authority

to negotiate the contract, it observed, “should be to the 8a venturer, with assistance from the

partner venturer.” Id.

Further, the SBA observed, although under the staffing plan Charitar would hire four full-

time-equivalent employees, those roles were then being performed under ZWS’s incumbent

contract by ZWS employees, who would have a “first right of refusal” with respect to Charitar’s

hiring of any other employees for their positions. Id. “[T]his division of labor,” the SBA opined,

would not allow Charitar to gain experience in performing certain aspects of the contract. See id.

The SBA also questioned CR/ZWS’s assertion that Charitar would perform 40% of the

work. It noted that it appeared that Charitar had been “relegated to managerial duties.” Id. “As it

reads,” according to the SBA, “the 8a venturer must gain substantive experience, but [the

amendment] does not delineate what or how this will be done.” Id. Further, according to the

SBA, the amendment indicated that Charitar would be performing “executive oversight” of the

contract, which the SBA believed “translates to administrative [work], without any actual

performance experience in the delivery of services on the base.” Id.

Finally, the SBA noted that “Charitar has no prime contracting experience in . . . solid

waste collection services,” while “ZWS – the incumbent – has all the experience, equipment and

personnel needed to perform the government contract at issue.” Id. at 575. Charitar’s lack of

experience in performing these services and its lack of the necessary vehicles, the SBA reasoned,

would lead to it being “wholly dependent on ZWS for performance,” raising “issues of negative

control.” Id. Citing 13 C.F.R. § 124.513(a)(2), the SBA concluded that because “Charitar brings

very little to the joint venture relationship in terms of resources and experience other than its 8(a)

status, SBA should not approve the joint venture agreement.” Id.

In light of its rejection of Amendment 5, the SBA denied VMX’s pending size protest on

January 23, 2018. Id. Tab 53 at 440. It concluded that because CR/ZWS’s proposed amendment

“was being declined . . . CR/ZWS cannot be considered an eligible 8(a) concern for this instant

procurement.” Id. at 441. Because this “eliminated [CR/ZWS] from being considered for award,”

it was “no longer the prospective awardee” and VMX’s protest was therefore “dismissed as

premature.” Id.

7

VI. The SBA Denies CR/ZWS’s Request for Reconsideration

On January 23, 2018, CR/ZWS requested that the SBA reconsider its decision rejecting

Amendment 5. Id. Tab 96 at 744–46. On February 14, 2018, the SBA denied the request. Id. Tab

100 at 804–08.

In denying reconsideration, the SBA observed that under its regulations, “an 8(a) joint

venture agreement is permissible only where an 8(a) Participant lacks the necessary capacity to

perform the contract on its own, and the agreement will be fair and equitable and will be of

substantial benefit to the 8(a) concern.” Id. at 804–05 (citing 13 C.F.R. § 124.513(a)(2)). It noted

that in its original decision, it had concluded that the agreement as modified by Amendment 5

“would not substantially benefit Charitar because the firm lacks the requisite resources and

expertise to meaningfully contribute to contract performance, and would bring very little to the

relationship other than its 8(a) status.” Id. at 805. “Specifically,” the SBA observed, “the decline

letter noted concerns with respect to equipment disparity, project management and staffing,

contract negotiation, and performance, and prior experience.” Id.

The SBA then addressed and rejected each of CR/ZWS’s proffered grounds for

reconsideration. First, CR/ZWS had argued that in rejecting Amendment 5, the SBA had

improperly relied upon the disparity between Charitar’s and ZWS’s proposed contributions of

equipment needed to perform the contract. Id. Tab 96 at 744. CR/ZWS contended that there is no

requirement in SBA’s regulations that each venturer “invest an ‘equitable’ portion of equipment

or resources.” Id. Further, it argued that the SBA had “overlook[ed]” Charitar’s other

contributions to the joint venture “including office space, supplies, and uniforms, which make

the agreement fair and equitable to both parties.” Id.

The SBA dismissed CR/ZWS’s argument that it had imposed an arbitrary requirement

that the venturers’ equipment contributions be equitable. Id. Tab 100 at 805. Rather, it noted,

“[t]he decline letter clearly demonstrates that the [Fresno District Office] weighed the relative

contributions of Charitar and ZWS and determined that Charitar would bring very little in terms

of contract resources.” Id.

CR/ZWS also requested reconsideration on the ground that—contrary to the SBA’s

belief—the proposed project manager was not an employee of ZWS; rather, he was an employee

of a third party, Shell Soft. Id. Tab 96 at 745. Further, CR/ZWS claimed, the denial letter had

disregarded the staffing plan that was included in Amendment 5, which specified that Charitar

would employ the project manager, quality control manager, quality control inspector, scale

operator, and landfill operator, while ZWS would employ only two full-time equivalents for

purposes of contract performance, heavy truck drivers. Id.

The SBA conceded that it was mistaken when it stated that the proposed project manager

was an employee of ZWS. Id. Tab 100 at 805. It nonetheless concluded that corrective action

was not warranted because Charitar had still failed to comply with 13 C.F.R. § 124.513(c)(2)

regarding the proposed project manager. See id. As noted, where an individual slated to be

project manager is not an employee of the 8(a) concern at the time of submitting a bid,

§ 124.513(c)(2) states that “there must be a signed letter of intent that the individual commits to

be employed by the 8(a) Participant if the joint venture is the successful offeror.” But “[c]ontrary

8

to these regulatory requirements,” the SBA stated, “it appears that CR/ZWS designated as

project manager an individual not employed by Charitar without executing the . . . letter of

intent.” AR Tab 100 at 806.

Finally, CR/ZWS objected to the SBA’s finding that “the 8a venturer will be doing the

‘executive oversight’ of the contract [which] translates to administrative, without any actual

performance experience in the delivery of services on the base.” Id. Tab 96 at 745 (quoting

denial letter) (alteration in original). To the contrary, CR/ZWS argued, “Charitar will be gaining

actual, hands-on experience through the five FTEs, which represent nearly 70% of the annual

labor hours on this services contract.” Id. (emphasis in original). It asserted that “[t]his work is

more than administrative and offers Charitar the ability to gain experience in solid waste

collection services—which is exactly the purpose of joint ventures under 13 C.F.R. § 124.513.”

Id.

The SBA rejected these contentions as well. Id. Tab 100 at 806. It asserted that “none of

the FTEs under the contract would have come from Charitar,” noting that, in accordance with the

right of first refusal established under Executive Order 13,495, “CR/ZWS would primarily staff

its share of FTEs . . . with personnel hired from ZWS.” Id. As a result, the SBA believed “that

Charitar would rely too heavily on ZWS’s personnel, and . . . not obtain substantive staffing

experience under the contract.” Id. The SBA also concluded that under the amendment, Charitar

“would have primarily provided administrative and ancillary services under the contract, while

ZWS would have performed four of the five essential functions for the Army.” Id. at 807.

Specifically, “ZWS—or former employees of ZWS—would have been exclusively responsible

for refuse collection, refuse delivery, recycling delivery and landfill operation.” Id. Charitar, on

the other hand, “would have only performed recycling collection and contract administration

services, which amount to a small portion of contract deliverables under the [performance work

statement].” Id. “It was thus reasonable,” the SBA stated, “for the [Fresno District Office] to

conclude that Charitar would have gained minimal substantive experience from th[e] contract.”

Id.

Finally, the SBA cited a recent size determination with respect to a contract for custodial

services involving Charitar and ZWS. Id. at 808 (citing Charitar Realty, SBA No. SIZ-5806 (Jan.

25, 2017)). In that matter, the SBA had concluded “that Charitar ran afoul of the ostensible

subcontractor rule,” 13 C.F.R. § 121.103(h)(4), because: “1) ZWS was the incumbent on the

predecessor contract for similar custodial services, and was ineligible to submit its own proposal;

2) Charitar would staff its portion of the contract almost entirely with personnel hired from

ZWS; 3) Charitar’s proposed project manager was an employee of ZWS; and 4) Charitar lacked

the relevant experience to win and perform a contract for custodial services.” Id. The SBA

concluded that the similarity in circumstances “establishes a pattern of Charitar’s undue reliance

on ZWS,” which “informs the inquiry of whether Charitar will substantially benefit from any

subsequent contracts awarded to CR/ZWS.” Id.

VII. Award to VMX

On January 19, 2018, the Army informed the SBA that—in light of the SBA’s

disapproval of the proposed amendment—the Army would reject CR/ZWS’s bid. See id. Tab 69

at 577. That same day, the SBA found VMX eligible for 8(a) set-asides. Id. Tab 70 at 578.

9

Shortly afterward, on February 6, 2018, the Army awarded the Ft. Riley contract to

VMX. Id. Tab 75 at 630–35. Also on February 6, the Army formally informed CR/ZWS that it

had rejected its bid because of the SBA’s “denial of [its] joint venture agreement.” Id. Tab 81 at

675.6

VIII. This Action

On February 21, 2018, CR/ZWS filed its complaint here. Compl., ECF No. 1. In it,

CR/ZWS alleges that the SBA “improperly denied an amendment to CR/ZWS’s joint venture

agreement in connection with an 8(a) Business Development Program . . . set-aside solicitation

issued by the U.S. Department of the Army.” Id. ¶ 1. “As a result,” CR/ZWS asserts, “the Army

improperly deemed CR/ZWS ineligible for award.” Id.

In its three causes of action, CR/ZWS alleges that: 1) the SBA’s denial was arbitrary,

capricious, and an abuse of discretion; 2) the SBA’s denial was contrary to law and regulation;

and 3) the Army’s use of the SBA’s denial letter to reject its bid was arbitrary, capricious, an

abuse of discretion, and in violation of law and regulation. Id. ¶¶ 20–39. CR/ZWS seeks

declaratory relief and an injunction stopping VMX’s performance of the contract, requiring the

SBA to either approve or reevaluate CR/ZWS’s proposed amendment, and directing the Army to

award the Ft. Riley contract to CR/ZWS. Id. at 10–11.

VMX moved to intervene on February 22, 2018, and the Court granted its motion. ECF

Nos. 9–10. On March 23, 2018, CR/ZWS filed a motion for judgment on the administrative

record. ECF No. 22. The government then filed a cross-motion for judgment on the

administrative record on April 6, 2018. ECF No. 27. VMX did not file any motions or briefs. The

Court held oral argument on May 2, 2018. ECF No. 29.

DISCUSSION

I. Subject Matter Jurisdiction

The Court of Federal Claims has jurisdiction over bid protests in accordance with the

Tucker Act, 28 U.S.C. § 1491, as amended by the Administrative Dispute Resolution Act of

1996 § 12, 28 U.S.C. § 1491(b). Specifically, the Court has the authority “to render judgment on

an action by an interested party objecting to a solicitation by a Federal agency for bids or

proposals for a proposed contract or 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); see also Sys. Application & Techs., Inc. v. United States,

691 F.3d 1374, 1380–81 (Fed. Cir. 2012) (observing that § 1491(b)(1) “grants jurisdiction over

objections to a solicitation, objections to a proposed award, objections to an award, and

objections related to a statutory or regulatory violation so long as these objections are in

connection with a procurement or proposed procurement”).

6

VMX’s performance was set to begin April 1, 2018, see AR Tab 77 at 643, but the Army

agreed to a voluntary stay of performance for the duration of this protest, Status Conference at

11:01:51am (Feb. 23, 2018).

10

To possess standing to bring a bid protest, a plaintiff must be an “interested party”—i.e.,

an actual or prospective bidder (or offeror) who possesses a direct economic interest in the

procurement. Sys. Application & Techs., Inc., 691 F.3d at 1382 (citing Weeks Marine, Inc. v.

United States, 575 F.3d 1352, 1359 (Fed. Cir. 2009)); see also 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 as a result of an alleged error in the procurement process. 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”); see also Weeks Marine, Inc., 575

F.3d at 1359.

In post-award protests, like this one, a plaintiff may demonstrate competitive injury or

prejudice by showing that it would have had a “substantial chance” of winning the award “but

for the alleged error in the procurement process.” Weeks Marine, Inc., 575 F.3d at 1359–62

(quoting Info. Tech. & Applications Corp. v. United States, 316 F.3d 1312, 1319 (Fed. Cir.

2003)). In making the standing determination, the Court assumes well-pled allegations of error in

the complaint to be true. Square One Armoring Serv., Inc. v. United States, 123 Fed. Cl. 309,

323 (2015) (citing Digitalis Educ. Sols., Inc. v. United States, 97 Fed. Cl. 89, 94 (2011), aff’d,

664 F.3d 1380 (Fed. Cir. 2012)); see also Salmon Spawning & Recovery All. v. U.S. Customs

& Border Prot., 550 F.3d 1121, 1131–32 & n.9 (Fed. Cir. 2008) (citing Lujan v. Defs. of

Wildlife, 504 U.S. 555, 561 (1992)); Linc Gov’t Servs., LLC v. United States, 96 Fed. Cl. 672,

694–95 (2010) (noting that the showing of prejudice as an element of standing “turns entirely on

the impact that the alleged procurement errors had on a plaintiff’s prospects for award, taking the

allegations as true,” and distinguishing “allegational prejudice” required to establish standing

from the “prejudicial error” required to prevail on the merits).

Here, CR/ZWS is objecting to the Army’s award of the contract to VMX, as well as to

alleged regulatory violations by the SBA. SBA determinations regarding eligibility for set-aside

contracts are decisions made in connection with a procurement. See Dorado Servs., Inc. v.

United States, 128 Fed. Cl. 375, 383 (2016); see also Tinton Falls Lodging Realty, LLC v.

United States, 800 F.3d 1353, 1356–60 (Fed. Cir. 2015). Further, CR/ZWS is an interested party

because it was an actual bidder and it possesses a direct economic interest in that, as the lowest

bidder in a lowest-price procurement, absent the SBA’s allegedly erroneous eligibility

determination, CR/ZWS would have had a substantial chance of being awarded the contract.

Accordingly, the Court has jurisdiction over CR/ZWS’s challenge to the SBA’s decision.7

II. Bid Protest Standards

Pursuant to Rule 52.1 of the Rules of the Court of Federal Claims (RCFC), the Court

reviews an agency’s procurement decision based on the administrative record. Bannum, Inc. v.

United States, 404 F.3d 1346, 1353–54 (Fed. Cir. 2005). The court makes “factual findings under

7

The government has argued that the Court lacks subject matter jurisdiction over one particular

claim that CR/ZWS is pressing in its motion for judgment on the administrative record—that the

SBA failed to comply with the procedural requirements applicable to informal adjudications

under 5 U.S.C. § 555. For the reasons set forth in greater detail below, the Court rejects that

argument.

11

RCFC [52.1] from the record evidence as if it were conducting a trial on the record.” Id. at 1357.

Thus, “resolution of a motion respecting the administrative record is akin to an expedited trial on

the paper record, and the Court must make fact findings where necessary.” Baird v. United

States, 77 Fed. Cl. 114, 116 (2007), aff’d, 285 F. App’x 746 (Fed. Cir. 2008). 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). 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.

In a bid protest, the Court weighs challenges to procurement decisions under the same

standards used to evaluate agency actions under the Administrative Procedure Act, 5 U.S.C.

§ 706. 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”).

Thus, to successfully challenge an agency’s procurement decision, a plaintiff must show that the

agency’s decision was “arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law.” 5 U.S.C. § 706(2)(A); see also Bannum, Inc., 404 F.3d at 1351.

This “highly deferential” standard of review “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. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974)). Thus, the Court cannot substitute

its judgment for that of the agency. See Honeywell, Inc. v. United States, 870 F.2d 644, 648

(Fed. Cir. 1989) (holding that as long as there is “a reasonable basis for the agency’s action, the

court should stay its hand even though it might, as an original proposition, have reached a

different conclusion” (quoting M. Steinthal & Co. v. Seamans, 455 F.2d 1289, 1301 (D.C. Cir.

1971))). Instead, the Court’s function is limited to “determin[ing] whether ‘the contracting

agency provided a coherent and reasonable explanation of its exercise of discretion.’” Impresa

Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1332–33 (Fed. Cir. 2001)

(quoting Latecoere Int’l, Inc. v. U.S. Dep’t of Navy, 19 F.3d 1342, 1356 (11th Cir. 1994)); see

also Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43

(1983) (court should review agency action to determine if the agency has “examine[d] the

relevant data and articulate[d] a satisfactory explanation for its action”). A disappointed offeror

“bears a heavy burden” in attempting to show that the agency’s decision lacked a rational basis.

Impresa Construzioni, 238 F.3d at 1338.

III. The Cross-Motions for Judgment on the Administrative Record

In this case, the SBA determined that the amendment to the joint venture agreement

between Charitar and ZWS was not “fair and equitable and . . . [not] of substantial benefit to the

8(a) concern”—i.e., Charitar. See 13 C.F.R. § 124.513(a)(2). It concluded that Charitar

“[brought] very little to the joint venture relationship in terms of resources and expertise other

than its 8(a) status.” See AR Tab 95 at 743. As a result, the Army awarded the contract to the

next lowest bidder, VMX.

CR/ZWS contends that, because the SBA originally certified CR/ZWS’s eligibility to the

Army in August 2017, it violated its own regulations by finding CR/ZWS ineligible for a

contract award in January 2018. It also argues that the SBA violated CR/ZWS’s “due process”

12

rights by not providing it with notice of the defects in Amendment 5 before it made its January

2018 determination of ineligibility.8 Finally, it contends that the grounds for the SBA’s decision

are not adequately documented and that its determination that the joint venture arrangement did

not satisfy regulatory criteria lacked a rational basis.

For the reasons set forth below, the Court finds each of these arguments unpersuasive.

A. Whether SBA Regulations Precluded the Agency from Revisiting its August

2017 Eligibility Determination

CR/ZWS first argues that the SBA violated one of its regulations—13 C.F.R.

§ 124.507(b)—when it rejected Amendment 5 in January 2018. Mem. in Supp. of Pl. CR/ZWS

LLC’s Mot. for J. on the Admin. R. (Pl.’s Mem.) at 9–12, ECF No. 23. According to CR/ZWS,

under that regulation, the SBA was bound by the positive eligibility determination that it

communicated to the Army on August 11, 2017, and lacked the authority to later reject

Amendment 5. This argument lacks merit.

The regulation at issue states, in pertinent part, that “[i]n either a negotiated or sealed bid

competitive 8(a) acquisition, the procuring activity will request that the SBA district office . . .

determine that firm’s eligibility for award.” 13 C.F.R. § 124.507(b). Upon receipt of the request,

the SBA is required to make its eligibility determination “[w]ithin 5 working days.” Id.

§ 124.507(b)(1). Further, “[w]here the apparent successful offeror is a joint venture and SBA has

not approved the joint venture prior to receiving notification of the apparent successful offeror,”

“[i]f SBA cannot approve the joint venture within 5 days” and “the procuring activity does not

grant additional time for review,” the regulation specifies that the SBA “will be unable to verify

the eligibility of the joint venture for award.” Id. § 124.507(b)(3).

According to CR/ZWS, 13 C.F.R. § 124.507(b) renders final and not subject to

reconsideration any 8(a) eligibility determination that the SBA makes within five days after a

contracting agency’s request. Pl.’s Mem. at 9–12. Thus, according to CR/ZWS, because the SBA

issued a positive eligibility determination within the five-day window, i.e., in August 2017, it

was precluded from issuing a non-eligibility determination months later in January 2018.

CR/ZWS’s reading of the regulation is unsupported by its text. Section 124.507(b) does

not purport to make final and irrevocable any eligibility determination that SBA makes within

the five-day window. Its apparent purpose is instead to promote efficiencies in the procurement

process by imposing a short turnaround time on the SBA to make its 8(a) eligibility

determinations, while giving agencies the authority to consent to a longer period for decision at

8

CR/ZWS appears to have formulated these regulatory and procedural arguments after its review

of the administrative record and they are not contained in its complaint. Nevertheless, the parties

have fully briefed these issues in their cross-motions for judgment on the administrative record

and the Court therefore treats the allegations as if raised in the pleadings. RCFC 15(b)(2); see

also Elmore v. Corcoran, 913 F.2d 170, 172 (4th Cir. 1990); Pac. Gas & Elec. Co. v. United

States, 70 Fed. Cl. 758, 763 n.6, 765 (2006); Tenn. Valley Auth. v. United States, 69 Fed. Cl.

515, 523–24 (2006).

13

their discretion. The regulation also provides that if the SBA does not meet the five-day deadline,

then—absent an agency’s agreement to extend the deadline—it will not be able to verify the joint

venture’s eligibility for award at all. 13 C.F.R. § 124.507(b)(3). The effect of subsection (b)(3) is

to give agencies the opportunity to move on to the next lowest bidder after five days if they have

not yet heard from the SBA. Or, if they wish, they may give the SBA additional time.

Nothing in the text of the regulation precludes the SBA from revisiting or changing a

prior, timely determination of eligibility, and doing so makes practical sense where, as here, a

contract award has not yet been made. Indeed, the interpretation promoted by CR/ZWS would

lead to the absurd result that the SBA could never correct a prior eligibility determination even if

it was clear that the determination was erroneous or contrary to law. That result would not only

undermine compliance with SBA requirements; it would also result in delays in the procurement

process as competitors would be required to file protests in order to secure relief from erroneous

SBA determinations.9

In short, SBA did not violate 13 C.F.R. § 124.507(b) when it made its January 2018

eligibility determination. Therefore, the government is entitled to judgment on the administrative

record as to this claim.

B. CR/ZWS’s Claim Under 5 U.S.C. § 555

CR/ZWS next argues that even if the SBA was not precluded by its regulations from

revisiting its August 2017 eligibility determination, its “sua sponte reconsider[ation] . . . without

providing CR/ZWS notice of the alleged defects in Amendment 5 or an opportunity to respond”

violated CR/ZWS’s procedural rights under 5 U.S.C. § 555, the provision of the Administrative

Procedure Act (APA) that governs informal agency adjudication. Pl.’s Mem. at 12.10

As an initial matter, the Court is unpersuaded by the government’s argument that it lacks

jurisdiction over this claim. See Def.’s Cross-Mot. for J. on the Admin. R. & Opp’n to Pl.’s Mot.

for J. on the Admin. R. at 16–17, ECF No. 27. It is, of course, well settled that the Court of

Federal Claims lacks the authority to entertain claims predicated on the APA. See Crocker v.

United States, 125 F.3d 1475, 1476 (Fed. Cir. 1997) (per curiam); see also Lion Raisins, Inc. v.

United States, 416 F.3d 1356, 1370 n.11 (Fed. Cir. 2005); Martinez v. United States, 333 F.3d

1295, 1313 (Fed. Cir. 2003) (en banc); Century Expl. New Orleans, LLC v. United States, 110

9

The Court also notes that the SBA’s Office of Hearings and Appeals has similarly rejected an

equitable estoppel challenge to an SBA reversal of a joint venture eligibility determination like

the one that occurred here. Doyon Props., Inc., SBA No. SIZ-4838 (Feb. 12, 2007). Although not

binding on the Court of Federal Claims, decisions of the SBA’s Office of Hearings and Appeals

may be persuasive. See Rotech Healthcare Inc. v. United States, 71 Fed. Cl. 393, 414, 421–23,

appeal dismissed, No. 06-5121 (Fed. Cir. Nov. 28, 2006).

10

In their briefs, the parties have generally referred to CR/ZWS’s procedural rights claims as

“due process” claims. But as CR/ZWS acknowledges, its claims are based on § 555, not the Fifth

Amendment. CR/ZWS LLC’s Reply in Supp. of Its Mot. for J. on the Admin. R. & Opp’n to

Gov’t’s Cross-Mot. for J. on the Admin. R. at 15, ECF No. 28.

14

Fed. Cl. 148, 173 (2013), aff’d, 745 F.3d 1168, 1179–80 (Fed. Cir. 2014). But the Court’s

jurisdiction over CR/ZWS’s claim is predicated not on the APA itself, but on the Tucker Act,

which (as noted) grants the Court jurisdiction over “an action by an interested party objecting

to . . . any alleged violation of statute or regulation in connection with a procurement or a

proposed procurement.” 28 U.S.C. § 1491(b)(1). Further, there is no question that an agency

must “run [a] procurement” in conformance with the APA, which establishes the bedrock

regulatory scheme that governs all agency conduct. See Cleveland Assets, LLC v. United States,

883 F.3d 1378, 1381–82 (Fed. Cir. 2018) (observing that the Tucker Act grants jurisdiction over

“statutory and regulatory violations” that occur in “the procurement context,” but not over those

that are only “tangentially related to a government procurement”). And the parties agree that the

SBA’s denial constituted an informal adjudication for purposes of the APA. Thus, because

CR/ZWS alleges that the SBA violated § 555 in the course of evaluating its eligibility to

participate in the procurement, and because therefore this alleged violation occurred “in

connection with a procurement,” the Court has Tucker Act jurisdiction over its claim.

The Court concludes, however, that this claim clearly lacks merit because there is nothing

in § 555 that guaranteed CR/ZWS notice and an opportunity to respond before the SBA reversed

its initial determination regarding CR/ZWS’s eligibility for the award. As the Supreme Court has

explained, the requirements that agencies must follow when conducting an informal adjudication

under § 555 are “minimal.” Pension Ben. Guar. Corp. v. LTV Corp., 496 U.S. 633, 655 (1990).

Indeed, in Pension Benefit Guaranty, the Supreme Court expressly rejected the argument that in

an informal adjudication a “party is entitled . . . to know the issues on which decision will turn”

in advance and “be apprised of the factual material on which the agency [will] rel[y] for decision

so that he may rebut it” before the decision is made. Id. (quoting Bowman Transp., Inc., 419 U.S.

at 288 n.4). Those procedural rights must be provided only in the context of formal agency

adjudications under 5 U.S.C. §§ 554 and 556–57.

Section 555(b), by contrast, “is universally understood to establish” a less elaborate

right—i.e., “the right of an interested person to participate in an on-going agency proceeding.”

Block v. S.E.C., 50 F.3d 1078, 1085 (D.C. Cir. 1995); see also 5 U.S.C. § 555(b) (providing in

pertinent part that “[a] party is entitled to appear in person or by or with counsel or other duly

qualified representative in an agency proceeding” and that “[s]o far as the orderly conduct of

public business permits, an interested person may appear before an agency or its responsible

employees for the presentation, adjustment, or determination of an issue, request, or controversy

in a proceeding, whether interlocutory, summary, or otherwise, or in connection with an agency

function”). And even that limited right is subject to the “broad discretion” of agencies “to limit

the participation of interested individuals and organizations in agency proceedings.” Animal

Legal Def. Fund, Inc. v. Vilsack, 237 F. Supp. 3d 15, 22 (D.D.C. 2017).

Similarly, subsection (e) provides significantly fewer procedural rights than those

claimed here. It requires that “[p]rompt notice shall be given of the denial in whole or in part of a

written application, petition, or other request of an interested person made in connection with any

agency proceeding” and that “[e]xcept in affirming a prior denial or when the denial is self-

explanatory, the notice shall be accompanied by a brief statement of the grounds for denial.”

It cannot be disputed that the proceedings before the SBA in connection with this

procurement were in compliance with these bare procedural requirements; in fact, they went

15

beyond them. Thus, CR/ZWS exercised its rights under 5 U.S.C. § 555(b) to participate in

proceedings before the SBA when Charitar submitted Amendment 5 for the agency’s approval

on August 10, 2017. AR Tab 90 at 721. Further, CR/ZWS’s participation was meaningful

because it had notice of the standards that the SBA would apply in making its determination.

Moreover, CR/ZWS received a written explanation of the grounds for the SBA’s January 2018

decision, which facilitates the Court’s review of that decision. In fact, it even had the opportunity

to request that the agency reconsider the findings that CR/ZWS considered erroneous. In

response, it received a second, more detailed explanation of the basis for the SBA’s

determination, which further facilitates this Court’s review. See Olivares v. T.S.A., 819 F.3d

454, 463 (D.C. Cir.) (the requirement that an agency set forth its reasoning in writing “not only

ensures the agency’s careful consideration of [the request before it], but also gives parties the

opportunity to apprise the agency of any errors it may have made and, if the agency persists in its

decision, facilitates judicial review” (quoting Tourus Records, Inc. v. D.E.A., 259 F.3d 731, 737

(D.C. Cir. 2001))), cert. denied, 137 S. Ct. 282 (2016).

The Court rejects CR/ZWS’s argument that some further procedural protections were

warranted in light of the fact that the SBA advised the Army that CR/ZWS was eligible for the

contract award on August 11, 2017. CR/ZWS was never informed of that initial determination

and therefore took no actions in reliance on it (nor did it refrain from taking actions in reliance

on that determination). See AR Tab 42 at 395 (August 11, 2017 SBA email sent only to Army);

Pl.’s Mem. at 13 (stating that the SBA “did not notify CR/ZWS of the initial eligibility

determination in August 2017”). In fact, CR/ZWS continued to anticipate and inquire about a

decision on its proposed amendment well after August 2017. See AR Tab 91 at 731 (November

3, 2017 email from Charitar to the SBA inquiring as to the status of its review of Amendment 5);

id. Tab 92 at 735 (November 6, 2017 email seeking same). Moreover, the SBA notified CR/ZWS

in December 2017 that it had not yet made a determination regarding Amendment 5 and it gave

CR/ZWS the opportunity to submit additional information for the review. See id. Tab 93 at 740

(December 28, 2017 SBA email to Charitar asking for solicitation and business plan for

Amendment 5); id. Tab 94 at 741 (January 2, 2018 SBA email to Charitar seeking same). In

short, CR/ZWS received all the procedural rights to which it was entitled under 5 U.S.C. § 555.

C. The SBA’s Decision to Reject CR/ZWS’s Joint Venture Amendment

Finally, CR/ZWS challenges the substance of the SBA’s decision rejecting Amendment 5

as arbitrary, capricious, and contrary to law. First, it contends that the administrative record does

not contain a sufficient explanation of the basis for what CR/ZWS characterizes as an “about-

face” in the SBA’s position between its initial eligibility determination in August 2017 and its

subsequent non-eligibility decision in January 2018. Second, it claims that the SBA erred:

1) when it took into consideration the disparity in the relevant contributions of equipment and

resources of each joint venturer; 2) when it concluded that the venturers’ proposed project

manager was a ZWS employee; 3) when it relied upon the fact that all other personnel on the

contract would likely be former ZWS employees in light of the right of first refusal granted by

Executive Order 13,495; 4) when it found that Charitar would be performing executive oversight

of the contract only, without gaining experience in the delivery of services called for under the

contract; and 5) when it concluded that Charitar would bring little to the joint venture other than

its 8(a) status.

16

For the reasons set forth below, the Court concludes that the SBA acted well within its

considerable discretion and consistently with its regulations when it rejected Amendment 5 and

found that CR/ZWS did not establish its eligibility for the contract. The government is therefore

entitled to judgment on the administrative record as to this claim.

First, the Court rejects CR/ZWS’s argument that the record is inadequate because it does

not explain why the SBA performed what CR/ZWS characterizes as an “about-face” in its

position. What CR/ZWS identifies as a determination of its eligibility is reflected only in a box

checked off on a form, dated August 11, 2017. The form itself makes no reference to

Amendment 5 at all and, in fact, the SBA communicated CR/ZWS’s eligibility via this form only

a few working hours after CR/ZWS submitted Amendment 5 for its approval.

The Court concludes that the most reasonable reading of the record is that when the SBA

made its eligibility determination the day after CR/ZWS submitted Amendment 5 for its

approval, the SBA had not taken Amendment 5 into consideration. The record also strongly

suggests that the SBA did not turn its attention to Amendment 5 until December 2017, when it

requested additional information from CR/ZWS in connection with its review of that

amendment.

In any case, the Court finds unpersuasive CR/ZWS’s argument that the SBA failed to

sufficiently articulate the basis for its rejection of Amendment 5. The agency’s burden of

explanation is a modest one; as noted, it need only articulate a “rational connection between the

facts found and the choice made,” and the Court will “uphold a decision of less than ideal clarity

if the agency’s path may reasonably be discerned.” Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43

(quotations omitted).

In this case, the basis for the SBA’s determination regarding Amendment 5 is readily

discerned from the January 2018 decision letter and the February 14, 2018 letter denying

CR/ZWS’s request for reconsideration.11 Those letters reveal that in determining what Charitar

was bringing to the joint venture arrangement (other than its 8(a) status), the SBA found it

significant that virtually all of the equipment needed to perform the work (whose estimated value

was $650,000) was to be supplied by ZWS, while Charitar would be supplying only local office

space, office supplies, uniforms, and personal protective equipment, valued at $50,000. It also

found that, in light of the requirements of Executive Order 13,495, Charitar would not be

supplying any new non-managerial employees for the contract. Instead, the staff Charitar would

11

The Court rejects CR/ZWS’s argument that the SBA’s February 14, 2018 letter contains “post-

hoc rationalizations” that the Court should not consider. Pl.’s Mem. at 28. The February 14, 2018

letter was not an after-the-fact justification “advanced by an agency seeking to defend past

agency action against attack.” See Auer v. Robbins, 519 U.S. 452, 462 (1997). To the contrary,

the February 14, 2018 letter is a part of the administrative decision-making process that CR/ZWS

challenges here. It represents the agency’s contemporaneous documentation of its rationale for

denying CR/ZWS’s request for reconsideration, which CR/ZWS made prior to litigation. AR Tab

100 at 804 (“This is in response to your letter . . . requesting that the U.S. Small Business

Administration . . . reconsider its January 17, 2018, decision to decline the fifth amendment . . .

to CR/ZWS[’]s . . . joint venture agreement.”); see also id. Tab 96 at 744–46.

17

employ, consisting of the quality control manager, the quality control inspector, the scale

operator, and the landfill operator, would be hired “en masse” from ZWS. AR Tab 100 at 806. In

addition, the SBA concluded that—notwithstanding the representation that Charitar would be

performing 40% of the work on the contract—it appeared that Charitar’s role would be largely

confined to administrative tasks and executive oversight of the contract. Accordingly, the SBA

found, Charitar would not gain any “actual performance experience in the delivery of services on

the base.” AR Tab 67 at 574. Further, the SBA observed that Charitar had no prime contracting

experience in solid waste collection services while ZWS, the incumbent, “ha[d] all the

experience, equipment and personnel needed to perform the government contract at issue.” Id. at

575.

In short, the SBA concluded that:

[I]f Charitar does not possess some experience in refuse services and

the applicable NAICS code [for solid waste collection services], and

if Charitar lacks essential vehicles that cannot be obtained from an

outside source based on restrictions in the Solicitation’s

Performance Work Statement except from ZWS, and Charitar is

wholly dependent on ZWS for performance of a contract due to its

lack of experience and/or resources, then we have issues of negative

control.

Id. And, “[i]f Charitar brings very little to the joint venture relationship in terms of resources and

experience other than its 8(a) status,” the SBA observed, it “should not approve the joint venture

agreement.” Id. (citing 13 C.F.R. § 124.513(a)(2)). These conclusions, in conjunction with the

findings described above, supply the requisite “rational connection between the facts found and

the choice made.”

Further, the Court concludes that CR/ZWS has not identified any legal errors in SBA’s

determination. First, CR/ZWS is incorrect that the SBA imposed a requirement that Charitar

invest an equal amount of resources and equipment in the joint venture. Rather, as noted above,

the SBA considered the significant disparity between each venturer’s contribution of equipment

as one factor supporting its conclusion under 13 C.F.R. § 124.513(a)(2) that “Charitar would

bring very little in terms of contract resources” and that the amendment, therefore, would not be

fair and equitable. Id. Tab 100 at 805. In addition, as a result of the requirements of Executive

Order 13,495, all employees on the contract (other than the project manager) would likely either

be current or former ZWS employees, rather than employees brought on independently by

Charitar.12

12

CR/ZWS contends that taking the right of first refusal under Executive Order 13,495 into

consideration makes it difficult for an 8(a) participant to form a joint venture with an incumbent

contractor. Pl.’s Mem. at 25. But the SBA’s non-eligibility finding was not based solely on the

fact that the contract would be primarily staffed by current or former ZWS employees; the SBA

also looked at the fact that ZWS was supplying the lion’s share of the equipment and that

Charitar brought little else in terms of resources and expertise to the contract.

18

In short, the equipment, expertise, and experience necessary for performance of the

contract would be supplied almost exclusively by ZWS, not Charitar. And even leaving aside the

requirements of the Executive Order, it is not surprising that the SBA concluded that Charitar

would bring little to the joint venture in terms of expertise and experience. Charitar, after all, is a

real estate, janitorial, and property maintenance firm; it does not perform services under the

NAICS code applicable to the procurement for refuse and recycling services. Compare id. Tab

30 at 167 with id. Tab 82 at 678.

The record similarly supports the SBA’s skepticism regarding whether Charitar would

actually perform 40% of the non-administrative and non-ministerial tasks under the contract, as

well as its conclusion that Charitar would not gain sufficient substantive experience to justify

approving the joint venture arrangement. While the proposed amendment represents that Charitar

“will perform forty percent (40%) of the work,” section 3.4.2 specifies that the work Charitar

would perform would involve “overall executive oversight,” including tasks such as “workforce

management, recycling services, contract administration, union negotiations[,] and monthly

contract report[s].” Id. Tab 87 at 705. Meanwhile, as the SBA observed, the terms of

Amendment 5 and of the procurement’s performance work statement indicated that “ZWS—or

former employees of ZWS—would have been exclusively responsible for refuse collection,

refuse delivery, recycling delivery, and landfill operation,” which were “four of the five essential

functions for the Army.” Id. Tab 100 at 807.

Finally, the Court notes that CR/ZWS has challenged the SBA’s conclusion that

Charitar’s designation of [***] as its project manager was defective under 13 C.F.R.

§ 124.513(c)(2) because Charitar failed to submit a signed commitment letter executed by [***].

Under that provision:

[T]he individual identified as the project manager of the joint

venture need not be an employee of the 8(a) Participant at the time

the joint venture submits an offer, but, if he or she is not, there must

be a signed letter of intent that the individual commits to be

employed by the 8(a) Participant if the joint venture is the successful

offeror.

Id.

It is not entirely clear to the Court that this regulatory language supports the SBA’s

conclusion that [***]’s designation was defective. On the one hand, the Court notes that the

aforementioned regulatory language does not express any requirement that a letter of intent be

incorporated into a joint venture agreement or submitted to the SBA. It states merely that “there

must be a signed letter of intent,” which means, literally, that such a letter must exist. This

passive language stands in contrast to the other language of the regulation, which imposes

affirmative requirements regarding what statements, designations, specifications, and

itemizations must be included in the provisions of the joint venture agreement. See, e.g., id.

§ 124.513(c) (“Every joint venture agreement . . . must contain a provision . . . setting forth the

purpose of the joint venture . . . .”). Moreover, Charitar notes (and the government does not

deny) that the SBA approved two earlier amendments to the joint venture agreement where the

proposed project manager was not a current Charitar employee, notwithstanding that Charitar did

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not submit a letter of intent to the SBA. See AR Tab 85 at 692; id. Tab 86 at 698; Pl.’s Mem. at

23–24 & n.3.

On the other hand, the requirement that there “must be a signed letter” is found within

subsection (c) of the regulation, which is entitled “[c]ontents of joint venture agreement[s].” 13

C.F.R. § 124.513(c). Moreover, it is difficult to see how the SBA could effectively review the

joint venture’s compliance with this requirement if the joint venture was not required to include

such a letter when it submitted its joint venture agreement for review. Such an interpretation

might impose a needless additional step onto what is already a constrained timeframe, by

requiring the SBA to inquire of joint ventures whether they possessed such letters.

But even if the Court was to conclude that the SBA erred when it found the designation

of [***] defective, CR/ZWS was not significantly prejudiced by such an error, as is required to

prevail in a bid protest. See Bannum, Inc., 404 F.3d at 1353 (citing Alfa Laval Separation, Inc. v.

United States, 175 F.3d 1365, 1367 (Fed. Cir. 1999); Statistica, Inc. v. Christopher, 102 F.3d

1577, 1581 (Fed. Cir. 1996); and Data Gen. Corp. v. Johnson, 78 F.3d 1556, 1562 (Fed. Cir.

1996)). To establish “significant prejudice,” CR/ZWS must show that there was a “substantial

chance” it would have received the contract award but for the supposed error regarding the letter

of intent. See id. In light of the other grounds articulated by the SBA for rejecting Amendment 5

(and found to be rational by the Court), the Court concludes that CR/ZWS has failed to make

such a showing.13

In the end, what is ultimately at issue here is whether the amendment to the joint venture

agreement between Charitar and ZWS promotes the underlying purposes of the Business

Development Program as reflected in 13 C.F.R. § 124.513. That regulation authorizes an 8(a)

concern that would otherwise lack the capacity to perform a contract to partner with a more

experienced, non-8(a) concern through a “fair and equitable” joint venture agreement, and

authorizes an agency to award the contract to the joint venture. But in order for the joint venture

to be eligible for a contract set aside for 8(a) concerns, the joint venture arrangement must

provide a “substantial benefit” to the 8(a) concern—i.e., it must enhance the 8(a) concern’s

future capacity to win and perform similar contracts on its own. At the same time, to ensure that

the 8(a) concern will provide more than window dressing, which would allow the non-8(a)

13

CR/ZWS also raises a concern about the SBA’s citation of its recent decision in Charitar

Realty, SBA No. SIZ-5806 (Jan. 25, 2017) as a basis for denying reconsideration. Pl.’s Mem. at

29. In that decision, the SBA concluded (as discussed above) that the arrangement between

Charitar and ZWS in connection with a custodial, landscaping, and grounds maintenance

contract ran afoul of the ostensible subcontractor rule because Charitar, the prime contractor, was

unduly reliant upon ZWS, its subcontractor. CR/ZWS contends that the SBA’s citation of this

decision demonstrates that the SBA improperly incorporated “ostensible subcontractor”

principles into the joint venture arena. Id. The Court disagrees. The SBA did not find CR/ZWS

ineligible because of an application of the “ostensible subcontractor” rule; instead it cited its

findings of “undue reliance” in Charitar Realty as informing its inquiry here as to whether

Charitar would reap any benefit if the contract was awarded to CR/ZWS, as required by 13

C.F.R. § 124.513(a)(2).

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concern to qualify for a contract award that it would not otherwise be eligible to receive, the

SBA requires the 8(a) concern to bring more to the table than its 8(a) status.

Ultimately, the determination of how the balance should be struck upon consideration of

the relevant factors is one entrusted to the SBA, not this Court. The government, accordingly, is

entitled to judgment on the administrative record as to CR/ZWS’s claim that the SBA’s

determination of non-eligibility was arbitrary, capricious, and inconsistent with law.

CONCLUSION

For the foregoing reasons, CR/ZWS’s motion for judgment on the administrative record

is DENIED and the government’s cross-motion for judgment on the administrative record is

GRANTED. The Clerk is directed to enter judgment accordingly. Each side shall bear its own

costs.

IT IS SO ORDERED.

s/ Elaine D. Kaplan

ELAINE D. KAPLAN

Judge

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