Prioritizing Programs to Exempt Small Businesses from Competition in Federal Contracts

Prioritizing Programs to Exempt Small Businesses

from Competition in Federal Contracts

The Small Business Administration’s regulations governing the interplay among the

Historically Underutilized Business Zone Program, the 8(a) Business Development

Program, and the Service-Disabled Veteran-Owned Small Business Concern Program

constitute a permissible construction of the Small Business Act.

The Small Business Act does not compel the prioritization of awards under the Historical-

ly Underutilized Business Zone Program over those under the 8(a) Business Develop-

ment Program and the Service-Disabled Veteran-Owned Small Business Concern

Program. The Small Business Administration’s regulations permissibly authorize con-

tracting officers to exercise their discretion to choose among these three programs in

setting aside contracts to be awarded to qualified small business concerns.

The Office of Legal Counsel’s conclusion that the Small Business Administration’s

regulations are reasonable is binding on all Executive Branch agencies.

August 21, 2009

MEMORANDUM OPINION FOR THE GENERAL COUNSEL

SMALL BUSINESS ADMINISTRATION

The Small Business Act (“Act”), as amended, exempts certain classes

of small businesses from the general requirement that federal contracts

to procure goods and services be awarded on the basis of full and open

competition. See Act of July 30, 1953, Pub. L. No. 83-163, 67 Stat. 230

(codified as amended at 15 U.S.C.A. §§ 631–657p (West 2009)). 1 In

particular, the Act establishes various programs, administered by the

Small Business Administration (“SBA”), to assist qualifying small busi-

nesses in obtaining federal contracts by exempting them, in certain cir-

cumstances, from the degree of competition that would otherwise be

required. At issue here is the permissibility of SBA’s regulations govern-

ing the interplay among three such programs: the Historically Underuti-

lized Business Zone (“HUBZone”) Program, the 8(a) Business Develop-

1 ”Full and open competition” in the context of federal procurement means “that all

responsible sources are permitted to submit sealed bids or competitive proposals on the

procurement.” 41 U.S.C. § 403(6) (2006); see also 41 U.S.C.A. § 253 (West Supp. 2009)

(requiring full and open competition in the conduct of procurements for property or

services, except under certain circumstances as provided ).

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ment Program, and the Service-Disabled Veteran-Owned (“SDVO”)

Small Business Concern Program.

Under SBA’s regulations, federal contracting officers are given sub-

stantial discretion to consider and designate contracts for either the HUB-

Zone, 8(a), or SDVO Program without having to prioritize one program

above the others. This aspect of the regulations—which, according to

SBA, effectively establishes “parity” among the three programs—has

been called into question by a pair of recent Government Accountability

Office (“GAO”) bid protest decisions. 2 In these decisions, GAO rejected

SBA’s approach and ruled instead that the Act mandates that priority be

given to the HUBZone Program when certain statutory conditions are met.

As a result, according to GAO, contracting officers must set aside federal

contracts to qualified HUBZone small businesses, when two or more such

businesses can submit fair market bids, before they can set aside such

contracts for award to small businesses under the 8(a) or SDVO Pro-

grams.

You have asked for our views on whether GAO was correct to conclude

that the Act compels such prioritization of the HUBZone Program. See

Letter for David Barron, Acting Assistant Attorney General, Office of

Legal Counsel, from Sara D. Lipscomb, General Counsel, Small Business

Administration, at 2 (July 1, 2009) (“Lipscomb Letter”). You have further

asked whether, if the Act can be read not to require such prioritization,

GAO has authority to invalidate SBA’s regulations. See id. Having care-

fully reviewed the relevant legal materials, including SBA’s own views,

we conclude that the Act does not compel SBA to prioritize the HUBZone

Program in the manner GAO determined to be required. In our view,

SBA’s regulations permissibly authorize contracting officers to exercise

their discretion to choose among the three programs in setting aside

contracts to be awarded to qualified small business concerns. 3 Further, in

2 See Mission Critical Solutions, B-401057, 2009 WL 1231855 (Comp. Gen. May 4)

(“MCS”), recons. denied, B-4010572 (Comp. Gen. July 6, 2009); International Program

Group, Inc., B-400278, B-400308, 2008 WL 4351134 (Comp. Gen. Sept. 19) (“IPG ”).

recons. denied, B-400278.2 et al. (Comp. Gen. Oct. 24, 2008). The Comptroller General’s

authority to review bid protests concerning alleged violations of a procurement statute or

regulation is set forth in 31 U.S.C §§ 3551–3557 (2006).

3 Our conclusion regarding these SBA regulations addresses only whether they consti-

tute a permissible interpretation of the Act.

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33 Op. O.L.C. 284 (2009)

accord with this Office’s longstanding precedent, GAO’s decisions are not

binding on the Executive Branch.

I.

The underlying legal issue ultimately turns on a relatively straightfor-

ward question of statutory interpretation, but it arises out of a complicated

statutory and regulatory framework. Accordingly, we first review the key

statutory provisions that establish these three programs.

A.

The term “HUBZone” refers to economically disadvantaged or dis-

tressed areas located within one or more qualified census tracts, nonmet-

ropolitan counties, Indian reservations, or base closure areas. See 15

U.S.C. § 632(p)(1)–(2) (2006). Established by the Small Business Reau-

thorization Act of 1997, Pub. L. No. 105-135, § 602(b)(1)(B), 111 Stat.

2592, 2627 (codified as amended at 15 U.S.C. § 657a(a) (2006)), the

HUBZone Program provides federal contract assistance to qualified

small business concerns operating within a HUBZone through contracts

awarded on a sole source basis, contracts awarded on the basis of com-

petition restricted to HUBZone concerns, or a ten-percent bid adjust-

ment for contracts awarded on the basis of full and open competition. Id.

§ 657a(a)–(b).

The “restricted competition” provision at issue in the GAO decisions

states that:

Notwithstanding any other provision of law . . . a contract opportuni-

ty shall be awarded pursuant to this section on the basis of competi-

tion restricted to qualified HUBZone small business concerns if the

contracting officer has a reasonable expectation that not less than 2

qualified HUBZone small business concerns will submit offers and

that the award can be made at a fair market price.

Id. § 657a(b)(2)(B). The conditions set forth in this provision—“a reason-

able expectation that not less than 2 qualified HUBZone small business

concerns will submit offers” and “that the award can be made at a fair

market price”—are commonly referred to as “the rule of two.” When the

rule of two is met, the statute provides that the award must be made on the

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Prioritizing Programs to Exempt Small Businesses from Competition

basis of competition restricted to qualified HUBZone small businesses.

This provision closely resembles in language and structure the restricted

competition provision found in the earlier-enacted 8(a) Program. See id.

§ 637(a)(1)(D) (2006). The HUBZone Program also provides, in the

alternative, that “a contracting officer may award sole source contracts

under this section to any qualified HUBZone small business concern”

upon a determination, inter alia, that there is no “reasonable expectation

that two or more qualified HUBZone small business concerns will submit

offers for the contracting opportunity.” Id. § 657a(b)(2)(A).

B.

The 8(a) Program, established by amendment to the Act on October 24,

1978, Pub. L. No. 95-507, § 202, 92 Stat. 1757, 1761 (codified as amend-

ed at 15 U.S.C. § 637), “promote[s] the business development of small

business concerns owned and controlled by socially and economically

disadvantaged individuals,” id. § 631(f )(2)(A) (2006), defined as “those

who have been subjected to racial or ethnic prejudice or cultural bias

because of their identity as a member of a group without regard to their

individual qualities,” id. § 637(a)(5), and “whose ability to compete in the

free enterprise system has been impaired due to diminished capital and

credit opportunities as compared to others in the same business area who

are not socially disadvantaged.” Id. § 637(a)(6)(A).

The 8(a) Program promotes socially and economically disadvantaged

small business development by, among other things, reserving certain

contracts with federal agencies for administration and award by SBA to

eligible 8(a) Program participants. The 8(a) authorizing statute provides,

inter alia, that “[i]t shall be the duty of [SBA] and it is hereby empow-

ered, whenever it determines such action is necessary or appropriate,” to

enter into procurement contracts with the federal government or any

department, agency, or officer thereof, id. § 637(a)(1)(A), and then “to

arrange for the performance of such procurement contracts” by awarding

them to eligible 8(a) participants when certain conditions are met, id.

§ 637(a)(1)(B)–(C). 4 The statute explicitly states that contracting officers

4 SBA has promulgated regulations that permit it to delegate its 8(a) contract execution

and review authority to procuring departments and agencies. See 13 C.F.R. §§ 124.501(a),

124.503, 124.512 (2009).

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33 Op. O.L.C. 284 (2009)

shall retain “discretion to let such procurement contract[s]” to SBA for the

8(a) Program. Id. § 637(a)(1)(A).

The statute further provides that SBA’s authority to award an 8(a)

contract is conditioned on the requirement that the award be made as a

result of an offer submitted in response to a published solicitation

about “a competition conducted pursuant to subparagraph (D).” Id.

§ 637(a)(1)(C)(i). Subparagraph (D)(i), in turn, provides:

A contract opportunity offered for award pursuant to this subsection

shall be awarded on the basis of competition restricted to eligible

Program Participants if . . . there is a reasonable expectation that at

least two eligible Program Participants will submit offers and that

award can be made at a fair market price.

Id. § 637(a)(1)(D)(i)(I).

C.

The SDVO Program was established by the Veterans Benefits Act of

2003, Pub. L. No. 108-183, § 308, 117 Stat. 2651, 2662 (codified at 15

U.S.C. § 657f (2006)), and provides for federal contract assistance to

qualified service-disabled veteran-owned small businesses through sole

source and restricted competition awards. Id. § 657f.

The conditions set forth in the SDVO statute for the award of sole

source contracts are the same as in the HUBZone statute. Compare id.

§ 657f (a) with id. § 657a(b)(2)(A). However, unlike the HUBZone and

8(a) provisions, the SDVO statute does not mandate the award of con-

tracts through restricted competition even “if the contracting officer has a

reasonable expectation that not less than 2 small business concerns

owned and controlled by service-disabled veterans will submit offers and

that the award can be made at a fair market price.” Id. § 657f (b). Instead

of requiring that a contract opportunity “shall be awarded” through

restricted competition in such circumstances, the SDVO statute provides

that the award “may” be made through such competition if the rule of

two is met. Compare id. (“a contracting officer may award”) with id.

§ 637(a)(1)(D)(i) (“a contract opportunity . . . shall be awarded”) and id.

§ 657a(b)(2)(B) (“a contract opportunity shall be awarded”).

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D.

It is against this legislative background that SBA issued its regulations

to guide contracting officers in making the determination whether and

when to set aside a contract for the HUBZone, 8(a), or SDVO Program.

Congress delegated broad authority to SBA to carry out the policies and

purposes of the Act. See generally id. §§ 633(a), 634(b), 644(g) (2006).

The relevant parts of the HUBZone regulations that you have asked us to

review in light of the GAO decisions direct contracting officers first to

determine whether the contract is a follow on to one already being per-

formed by an 8(a) participant, has already been accepted for the 8(a)

Program by SBA, or would be performed by a federal prison workshop or

participating non-profit agency for the blind or severely disabled. 5 See

13 C.F.R. §§ 126.605 and 126.607 (2009). If the contract is still available,

the regulations state that a contracting officer shall then choose among the

HUBZone, 8(a), or SDVO Programs and “set aside the requirement for

HUBZone, 8(a) or SDVO [] contracting before setting aside the require-

ment as a small business set-aside.” Id. § 126.607.

The SDVO regulations implicated by the GAO decisions are operative-

ly the same as the HUBZone regulations. Compare id. §§ 126.605 &

126.607 with id. §§ 125.18 & 125.19. A parallel provision also exists in

the 8(a) regulations. 6 See id. § 124.503(j).

5 See 18 U.S.C. § 4124 (2006) (requiring purchase of prison-made products by all fed-

eral departments and agencies); 41 U.S.C. § 48 (2006) (requiring governmental purchases

from qualified nonprofit agencies for the blind or severely disabled ); see also 15 U.S.C.

§ 657a(b)(4) (prioritizing procurement awards to prison, blind, and severely-disabled

entities over HUBZone awards); id. § 657f (c) (prioritizing procurement awards to prison,

blind, and severely-disabled entities over SDVO awards).

6 The SDVO and 8(a) regulations provide that the contracting officer “should consider

setting aside the requirement” for 8(a), HUBZone, or SDVO participation “before consid-

ering” setting it aside for other small business programs. 13 C.F.R. §§ 125.19(b),

124.503(j) (2009) (emphasis added ). Thus, although the SDVO and 8(a) regulations

contain discretionary language not found in the corresponding HUBZone regulation, they

nevertheless place the three programs on equal footing and prioritize their consideration

before small businesses generally. In this way, they are consistent with the HUBZone

regulations and provide uniform guidance to contracting officers regarding the interplay

among the programs at issue. See 70 Fed. Reg. 51243, 51245 (Aug. 30, 2005) (“To make

the HUBZone regulations consistent with SBA’s recently published SDV regulations,

SBA is . . . revising § 126.607 to incorporate contracting preferences for HUBZone, 8(a)

289

33 Op. O.L.C. 284 (2009)

The SBA’s regulations do not expressly provide for parity of treatment

among the 8(a), HUBZone, or SDVO Programs. See id. §§ 124.503(j),

125.19(b), and 126.607(b). Rather, by their plain terms, the regulations

require that contracting officers prioritize these programs collectively by

giving consideration to the group of them before a contracting officer may

set aside an opportunity for small businesses generally and before the

contracting officer may make the contract otherwise available. See Lip-

scomb Letter at 6–7 (“The regulations themselves do not establish an

order of precedence between an award under the HUBZone, SDVO SBC,

or 8(a) BD programs.”). The regulations do not, therefore, single out one

program for the kind of prioritization over the other two that the GAO

decisions conclude is mandated under the HUBZone statute. It is in this

sense that, as the SBA puts it, the regulations “provide[] for parity be-

tween the HUBZone, SDVO SBC and 8(a) BD programs.” Id. at 7.

II.

Having reviewed the language, context, and history of the relevant por-

tions of the Act, we conclude that SBA’s regulations implementing the

HUBZone Program are based on a permissible interpretation of the Act.

See Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837,

843 (1984); see also Smiley v. Citibank (South Dakota), N.A., 517 U.S.

735, 740–41 (1996) (“We accord deference to agencies under Chevron . . .

because of a presumption that Congress, when it left ambiguity in a stat-

ute meant for implementation by an agency, understood that the ambiguity

would be resolved, first and foremost, by the agency.”). The GAO deci-

sions reached the opposite conclusion based on what GAO considered

the unambiguous language of the HUBZone Program’s restricted compe-

tition provision. See MCS, 2009 WL 1231855, at *2–4; IPG, 2008 WL

4351134, at *4. GAO concluded that “the clear language” of this provi-

sion in the HUBZone statute, which uses the term “shall” with respect to

the award of contracts, stood in marked contrast to the Act’s use of the

discretionary term “may” in the SDVO Program provision, IPG, 2008 WL

4351134, at *3–4 (citing 15 U.S.C. § 657f (b)), and its use of other discre-

tionary language in the 8(a) Program, which authorizes a contracting

and SDV over small business set-asides. This change will ensure consistent guidance

throughout 13 CFR Chapter 1.”).

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officer “‘in his discretion to let such procurement contract to [SBA].’”

MCS, 2009 WL 1231855, at *2 (quoting 15 U.S.C. § 637(a)(1)(A)).

Because Congress used mandatory language with respect to the award of

contracts pursuant to the HUBZone Program and discretionary language

with respect to the other two programs, GAO reasoned that Congress

intended to give the HUBZone Program priority over these other contract

assistance programs. The Ninth Circuit, we note, has expressed a similar

view of the “mandatory” versus “discretionary” language in the HUBZone

and 8(a) Programs. See Contract Mgmt., Inc. v. Rumsfeld, 434 F.3d 1145,

1149 (9th Cir. 2006) (“CM I ”). 7

We conclude that the HUBZone provision does not unambiguously di-

rect contracting officers to reserve every available contract opportunity

for HUBZone small businesses whenever the rule of two is met. Rather,

the text of the HUBZone provision may be fairly read as mandating only

that a contract opportunity—already set aside for HUBZone small busi-

nesses in the discretion of a contracting officer—be awarded on the basis

of restricted competition, and not as a sole source award, if the rule of two

is met. So read, the provision, instead of simply permitting restricted

competition for qualified HUBZone bidders, actually mandates such

7 CM I involved a challenge to an earlier HUBZone regulation, no longer in effect, that

directed contracting officers, inter alia, to give priority to eligible 8(a) participants over

HUBZone concerns. The regulation provided, however, that contracting officers other-

wise “must set aside the requirement for competition restricted to qualified HUBZone”

small businesses if the rule of two is met. 13 C.F.R. § 126.607(c) (current through Dec.

28, 2005). The appellant, a small business concern that did not qualify for either the 8(a)

or HUBZone Program, challenged this last aspect of the old regulation. In defending this

regulation, the government advanced a reading of the HUBZone provision as mandatory,

but inapplicable to the 8(a) Program. Citing legislative history, the government argued the

HUBZone statute is “reasonably read as showing that Congress intended that there be

parity between the Section 8(a) Program and the HUBZone Program.” Brief for Appellees

at 7, Contract Mgmt., Inc. v. Rumsfeld, 434 F.3d 1145 (9th Cir. 2006) (No. 04-15049).

The court ruled in the government’s favor. The court compared what it viewed as the

“unequivocal” terms of the HUBZone statute with the discretionary terms of the 8(a) set-

aside provision and concluded that SBA’s old regulation implementing the HUBZone

Program “properly accord[ed] with congressional intent under the Small Business Act.”

434 F.3d at 1147. The court noted that such a reading of the HUBZone statute was not

compelled. See id. at 1149 n.8. In 2005, after establishment of the SDVO Program, SBA

promulgated the current regulations replacing those reviewed by the CM I court. See 13

C.F.R. § 126.607.

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33 Op. O.L.C. 284 (2009)

competition. In other words, a contracting officer who uses discretion to

set aside a contract for the HUBZone Program has no choice but to award

a HUBZone contract on the basis of restricted competition once the rule

of two is met. But, so read, the HUBZone provision does no more than

compel restricted competition rather than a sole source award. It does not

go further and require the prioritization of the HUBZone Program itself,

leaving contracting officers with no discretion to set aside contracts for

the other SBA programs whenever the HUBZone provision’s rule of two

is met.

The most basic reason we reach this conclusion is that the text of the

HUBZone statute, on its own terms, does not clearly direct a contract-

ing officer to reserve any and all procurement contracts for HUBZone

small businesses whenever the rule of two is met. See 15 U.S.C.

§ 657a(b)(2)(B). The statute uses the mandatory phrase “shall be award-

ed” after the noun “contract opportunity,” but the sentence does not stop

there. It goes on to say “pursuant to this section”— i.e., under the HUB-

Zone Program. Id. This qualification permits the HUBZone provision to

be read as stating that contracts awarded “pursuant to this section” are

subject to the enumerated conditions, but it does not compel a reading that

all contract opportunities in the government must be awarded to the

HUBZone Program whenever the enumerated conditions are met. Indeed,

a contrary reading would implicate the canon of construction that discour-

ages statutory interpretation that would render language mere surplusage.

See, e.g., Clark v. Arizona, 548 U.S. 735, 755 n.24 (2006) (recognizing

“usual rule of statutory construction” to “giv[e] effect, if possible, to

every clause and word of a statute”) (internal quotations and citations

omitted ). In GAO’s interpretation, it is not clear what independent mean-

ing the “pursuant to this section” language would have.

Our conclusion is also consistent with another important section of the

HUBZone statute, which provides that contracting officers “may award

sole source contracts under this section” to any qualified HUBZone small

business if the rule of two cannot be met. 15 U.S.C. § 657a(b)(2)(A).

Again, the conditions set forth by this provision need only apply to con-

tracts intended for award “under this section,” i.e., under the HUBZone

Program. The mandatory “shall” in the restricted competition provision

can fairly be read, in connection with the discretionary “may” in the sole

source provision, simply as a direction to contracting officers that within

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the HUBZone Program there is a clear priority given to competition,

albeit restricted, over sole source contract awards.

Such a construction of the HUBZone restricted competition provision is

further supported by consideration of still another provision in the HUB-

Zone statute, which expressly prioritizes the award of contracts to prison

workshops and nonprofit agencies for the blind and severely-disabled

over HUBZone small businesses. See 15 U.S.C. § 657a(b)(4) (“A pro-

curement may not be made from a source on the basis of a preference

[provided in the HUBZone statute], if the procurement would otherwise

be made from a different source under section 4124 or 4125 of title 18 or

the Javits-Wagner-O’Day Act (41 U.S.C. 46 et seq.).”). Whereas this

provision clearly establishes the priority of these other contracting prefer-

ences, the HUBZone statute contains no express reference to the HUB-

Zone Program’s priority over SBA’s other contract assistance programs.

Of course, the language of the HUBZone provision should be construed

in the context of the provisions governing the other two SBA programs at

issue. For that reason, we have considered whether the discretionary

language in the 8(a) and SDVO statutes compels the conclusion that the

HUBZone statute (with its mandatory language) requires that the HUB-

Zone Program be given priority among the three programs. In our view,

there are several reasons why it does not.

First, the 8(a) provision actually does contain mandatory language. In-

deed, its restricted competition provision employs virtually the same

mandatory language as the HUBZone provision. Compare 15 U.S.C.

§ 637(a)(1)(D)(i) (“A contract opportunity offered for award pursuant to

this subsection shall be awarded on the basis of competition restricted to

eligible Program Participants if”), with id. § 657a(b)(2)(B) (“[A] contract

opportunity shall be awarded pursuant to this section on the basis of

competition restricted to qualified HUBZone small business concerns

if”). 8 In both instances, a contract opportunity “shall be awarded” on the

8 The 8(a) restricted competition provision predates the HUBZone provision by nine

years. Compare Business Opportunity Development Reform Act of 1988, Pub. L. No.

100-656, § 303, 102 Stat. 3853, 3868, with Small Business Reauthorization Act of 1997,

Pub. L. No. 105-135, § 602(b)(1)(B), 111 Stat. 2592, 2627. When the 8(a) Program was

originally established in 1978, all 8(a) contracts could be awarded on a sole-source basis.

See Amendments to the Small Business Investment Act of 1958, Pub. L. No. 95-507,

§ 202, 92 Stat. 1757, 1761 (1978). As part of a comprehensive reassessment of the 8(a)

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33 Op. O.L.C. 284 (2009)

basis of restricted competition if the applicable conditions are met. Where

Congress uses the same language in similarly structured provisions within

the same Act, it may be presumed that the language has the same meaning

in each instance. See, e.g., Estate of Cowart v. Nicklos Drilling Co., 505

U.S. 469, 479 (1992) (recognizing “the basic canon of statutory construc-

tion that identical terms within an Act bear the same meaning”). At the

very least, the use of this mandatory language in both the 8(a) and HUB-

Zone provisions makes it difficult to argue that the HUBZone provision

unambiguously mandates that HUBZone awards be given priority over

8(a) awards.

Second, the 8(a) provision clearly applies only to “[a] contract oppor-

tunity offered for award pursuant to this subsection”—in other words,

under the 8(a) Program. 15 U.S.C. § 637(a)(1)(D)(i). The mandate that

such contracts “shall be awarded” on the basis of restricted competition

does not extend to contract opportunities that exist outside of the 8(a)

Program. Given the similarity just discussed between the 8(a) and HUB-

Zone provisions, it is reasonable to read the phrase “pursuant to this

section” in the HUBZone statute to function the same way as the compa-

rable language contained in 8(a)—to limit the provision’s application only

to a “contract opportunity” already set aside for award pursuant to the

HUBZone Program.

Admittedly, the 8(a) and HUBZone restricted competition provisions

are not phrased in exactly the same way. As noted, the former provides

that “[a] contract opportunity offered for award pursuant to this subsec-

tion shall be awarded on the basis of competition,” id. § 637(a)(1)(D)(i)

(emphasis added ), whereas the latter provides that “a contract opportunity

shall be awarded pursuant to this section on the basis of competition,” id.

§ 657a(b)(2)(B) (emphasis added ). But this slight difference in word order

between the two provisions may fairly be read to reflect the fact that the

8(a) statute, unlike the HUBZone statute, explicitly provides for a means

Program in 1988, Congress amended the Act to require that 8(a) contracts be awarded on

the basis of restricted competition if certain conditions are met. See Pub. L. No. 100-656,

§ 303, 102 Stat. at 3868. Concerned about the success of the 8(a) Program, Congress

provided three principal reasons for introducing competition, albeit restricted, to the

program: “such competition will advance the business development objectives of the

[8(a)] program; improve the distribution of contracts; and help avoid programmatic

abuses.” H.R. Rep. No. 100-460, at 28 (1987).

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Prioritizing Programs to Exempt Small Businesses from Competition

by which contracts will be “offered for award pursuant to this subsec-

tion.” Id. § 637(a)(1)(D)(i).

Under the 8(a) statute, SBA is “empowered” to approach contracting

officers in other agencies and certify that an available contract should be

awarded under the 8(a) Program. Id. § 637(a)(1)(A). The discretionary

language included in the 8(a) statute that GAO emphasized appears in this

portion of the statute. Once SBA certifies that it is “competent and re-

sponsible” to perform a contract with a particular agency, the agency

contracting officer “shall be authorized in his discretion to let such pro-

curement contract” to SBA. Id. But this language can reasonably be read

in a way that is consistent with SBA not having to give the HUBZone

Program priority over the 8(a) Program. Because the 8(a) Program is a

business development program to promote the ability of its participants

to succeed as small business concerns, one aspect of this program is that

the statute empowers SBA affirmatively to procure contracts for award to

8(a) participants. The discretionary language found in this same provision

of the 8(a) statute may be read as an offset to this expansive SBA authori-

ty by reserving another agency’s ability not to accede to SBA’s certifica-

tion. Because the HUBZone Program provides contract assistance but is

not a more comprehensive business development program, there is no

such authority provided in the HUBZone statute for SBA to solicit con-

tracts on behalf of HUBZone concerns. Accordingly, the lack of an ex-

press reservation of a contracting officer’s discretion to decline a HUB-

Zone designation need not be construed to compel prioritization of the

HUBZone Program.

There is also no basis for concluding that the discretionary language in

the SDVO provision, see id. § 657f (b), requires the conclusion that the

HUBZone Program must have priority. As noted above, the HUBZone

provision includes discretionary language as well, in the award of sole

source contracts. The inclusion of the discretionary term “may” in both

the sole source and restricted competition provisions of the SDVO statute

can reasonably be read, in contrast to the HUBZone statute, not to require

the statutory prioritization of restricted competition over sole source

awards as the means of contracting assistance to SDVO small business

concerns.

Finally, it is true that the HUBZone provision is prefaced with the

phrase “Notwithstanding any other provision of law,” but the appearance

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33 Op. O.L.C. 284 (2009)

of that phrase does not establish a prioritization of its own force. Id.

§ 657a(b)(2). As we have noted previously, such “notwithstanding”

phrases are best read simply to qualify the substantive requirement that

follows. See Memorandum for Andrew J. Pincus, General Counsel,

Department of Commerce, from Randolph D. Moss, Acting Assistant

Attorney General, Office of Legal Counsel, Re: The Effect of 8 U.S.C.A.

§ 1373(a) on the Requirement Set Forth in 13 U.S.C. § 9(a) That Census

Officials Keep Covered Census Information Confidential at 7 (May 18,

1999). Here, as we have noted, the HUBZone provision is at least ambig-

uous as to whether its substantive effect is to mandate that all contracts

be set aside for its program and then subject, pursuant to the rule of two,

to restricted competition; or whether it is instead intended to subject,

pursuant to the rule of two, restricted competition only to those contracts

that have been set aside for the HUBZone Program in the exercise of the

contracting officer’s discretion. If the latter interpretation is a permissible

one, as we believe it is, then the “notwithstanding” clause simply ensures

that no other provision of law countermands a contracting officer’s

discretion to make a sole source, restricted competition, or other contract

award by means of assistance to qualified HUBZone small businesses

pursuant to the requirements contained in the HUBZone statute.

III.

We find further support for our position in the larger statutory frame-

work of the Act incorporating all three of the SBA programs at issue.

See FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132–33

(2000) (in considering the meaning of the statutory text, the particular

statutory provision should not be viewed in isolation; “[t]he meaning—or

ambiguity—of certain words or phrases may only become evident when

placed in context . . . . It is a ‘fundamental canon of statutory construction

that the words of a statute must be read in their context and with a view to

their place in the overall statutory scheme.’”) (quoting Davis v. Mich.

Dep’t of Treasury, 489 U.S. 803, 809 (1989)); see also Proposed Agency

Interpretation of “Federal Means-Tested Public Benefit[s]” Under Per-

sonal Responsibility and Work Opportunity Reconciliation Act of 1996,

21 Op. O.L.C. 21, 23 (1997) (“[I]t is well-established that a provision in

one Act of Congress should be read in conjunction with other relevant

statutory provisions and not in isolation.”). As discussed below, a reading

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of the HUBZone provision that does not compel prioritization comports

with the policies and purposes set forth in the Act and other specific

provisions that were amended with and after the 1997 reauthorization

establishing the HUBZone Program.

First, a construction of the statute that does not mandate HUBZone

Program priority furthers Congress’s stated policy that “small business

concerns owned and controlled by service-disabled veterans, qualified

HUBZone small business concerns, [and] small business concerns

owned and controlled by socially and economically disadvantaged

individuals . . . shall have the maximum practicable opportunity to

participate in the performance of contracts let by any Federal agency.”

15 U.S.C. § 637(d )(1); see also id. §§ 631(f )(1)(E), 637(d )(10). Congress

required that a clause stating this policy “shall be included” in virtually

every government procurement contract. See id. § 637(d )(2). In listing in

the policy all of the covered classes of small business concerns, Congress

did not in any way distinguish among them. Instead, the text does not

disturb the discretion SBA and the agencies have to ensure that all of the

covered small business concerns “have the maximum practicable oppor-

tunity” to secure federal contracts. Had Congress clearly intended to

prescribe some order of priority among these SBA programs, Congress

could have more directly adopted such a policy.

Second, this construction of the HUBZone statute furthers achievement

of government-wide goals required by the Act. See id. § 644(g)(1). The

Act prescribes that the “goal for participation by small business concerns

shall be established at not less than 23 percent of the total value of all

prime contract awards for each fiscal year.” Id. Furthermore, government-

wide participation goals “shall be established” at not less than 3 percent

each for HUBZone and SDVO small business concerns and not less than 5

percent for socially and economically disadvantaged small businesses. Id.

Each agency, in turn, must establish its own goal “that presents . . . the

maximum practicable opportunity” for the small business concerns quali-

fied under the various SBA programs “to participate in the performance of

contracts let by such agency.” Id. In total, the “cumulative annual prime

contract goals for all agencies” must “meet or exceed” the established

minimum annual government-wide goal. Id. Congress did not prescribe

for HUBZone concerns the highest minimum participation goal among the

various SBA programs and it left to agency discretion how to achieve its

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33 Op. O.L.C. 284 (2009)

set goals. An interpretation of the HUBZone statute that does not compel

a contract’s award to a qualified HUBZone concern whenever the rule of

two is met advances the achievement of the goals set forth for the other

SBA programs and preserves the balance among the various programs

established by the goaling provision of the Act.

IV.

Such a reading of the HUBZone statute also comports with congres-

sional intent as reflected in legislative history. The legislative history can

fairly be interpreted to show that Congress did not intend, through enact-

ment of the HUBZone statute, to require the award of available contracts

to qualified HUBZone concerns over 8(a) participants.

The HUBZone Program was introduced in 1997 as part of the Senate

version of the Small Business Reauthorization Act. See Small Business

Reauthorization Act of 1997, S. 1139, 105th Cong. tit. VI (as reported

by S. Comm. on Small Business, S. Rep. No. 105-62, Aug. 19, 1997). The

bill that the Senate Committee on Small Business unanimously voted to

report contained an amendment with “parity” language making clear

that the HUBZone Program did not interfere with the discretion of a

contracting officer to designate a procurement contract for the 8(a) Pro-

gram. 9 See S. 1139, 105th Cong. § 31(b)(5) (as reported by S. Comm. on

Small Business, S. Rep. No. 105-62, Aug. 19, 1997). Right after a “Sub-

ordinate Relationship” provision setting forth the priority to be afforded

to the prison industries, blind, and severely-disabled preference programs,

the amendment provided, in a subsection entitled “Parity Relationship,”

that the HUBZone assistance provisions of the bill “shall not limit the

9 At the time the bill was reported, the restricted competition provision of the HUB-

Zone Program tracked even more closely the restricted competition provision in the 8(a)

Program: “Subject to paragraph 3 [the sole source award provision], a contract opportu-

nity offered for award pursuant to this section shall be awarded on the basis of competi-

tion restricted to qualified HUBZone small business concerns, if there is a reasonable

expectation that not less than 2 qualified HUBZone small business concerns will submit

offers and that award can be made at a fair market price.” S. 1139, § 602(b)(1)(B), sec.

31(b)(B)(2) (1997); 143 Cong. Rec. 18,117. There is no explanation in the legislative

history for the subsequent edit to this provision. But as discussed above, accounting for

the substantive differences between the 8(a) and HUBZone Programs as enacted, the two

slightly different formulations can be read functionally to operate the same way.

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discretion of a contracting officer to let any procurement contract to

[SBA] under section 8(a).” 143 Cong. Rec. 18,118 (1997). It further

provided that “[n]otwithstanding section 8(a), [SBA] may not appeal an

adverse decision of any contracting officer declining to let a procurement

contract to the Administration, if the procurement is made to a qualified

HUBZone small business concern on the basis of a preference [set forth in

the bill].” Id. The Committee’s report explained that the proposed HUB-

Zone Program was “not designed to compete with SBA’s 8(a) Program,”

and that the “parity” provision was simply intended to “give[] the procur-

ing agency’s contracting officer the flexibility to decide whether to target

a specific procurement requirement for the HUBZone Program or the 8(a)

Program.” S. Rep. No. 105-62, at 26 (1997). The bill, with its parity

provision intact, passed the Senate. See S. 1139, 105th Cong. § 31(b)(5)

(as passed by Senate, Sept. 9, 1997).

When the bill reached the House of Representatives, the House struck

everything after the enacting clause and substituted the provisions of a

competing House version that omitted the entirety of the HUBZone Pro-

gram. See Small Business Reauthorization and Amendments Act of 1997,

H.R. 2261, 105th Cong. (as passed by House Sept. 29, 1997); 143 Cong.

Rec. 20,662 (1997). Following return of the bill to the Senate, as amended

by the House, the Senate reinstated the HUBZone Program by unanimous

consent, but without the parity provision. 143 Cong. Rec. at 24,094–108.

No explanation for the parity provision’s omission was provided in the

Senate record. See id. at 24,106.

The bill then returned to the House, where the issue of the HUBZone

Program’s relationship to the 8(a) Program was extensively discussed.

See 143 Cong. Rec. at 25,747–66 (1997). Representative John J. LaFalce,

the Ranking Member on the Committee on Small Business, explained that

the Senate had struck the parity provision at the insistence of House

members who were worried that the parity provision would have permit-

ted contracts to be taken from the 8(a) Program; in other words, that the

provision would have precluded the prioritization of 8(a) awards. Rep.

LaFalce stated that “[a]ny proposals which might place [the 8(a)] program

in jeopardy naturally cause concern to those Members who place a high

priority on the development of minority small business.” Id. at 25,760

(1997). Rep. LaFalce indicated that although the Senate prevailed in

establishing the HUBZone Program, the final bill “confers considerable

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33 Op. O.L.C. 284 (2009)

discretion on the Administration of the SBA who will implement it.” Id.

(statement of Rep. LaFalce). Indeed, as Rep. LaFalce stated, he resisted

the inclusion of the HUBZone Program until he was “specifically pre-

vailed upon by the Small Business Administration,” which pledged to him

in writing that SBA “will not permit the implementation of the HUB-

Zone’s program to negatively affect the 8(a) program.” Id. 10

Numerous Representatives who spoke on S. 1139 during the floor de-

bate expressed the same concern—that the new HUBZone Program not

harm the existing 8(a) Program. See 143 Cong. Rec. at 25,761 (statement

of Rep. Velázquez); id. (statement of Rep. Talent) (“I yield . . . to say that

that is also my understanding, and I have said from the beginning, that I

did not want this bill to affect the 8(a) program, and as far as I am con-

cerned, it is out of this bill, it is not mentioned in this bill[.]”); id. at

25,762 (statement of Rep. Wynn) (accepting assurances that HUBZone

Program would not harm 8(a) Program); id. at 25,763 (statement of Rep.

Davis) (commending the protection of the 8(a) program); id. at 25,764

(statement of Rep. Weygand ) (“Continued oversight and vigilance about

this HUBZone program is extremely necessary. I know all of my col-

leagues are looking to Administrator Alvarez to be sure that she does not

diminish the 8(a) program and sacrifice monies because of the HUB

program. . . . I am concerned that there may be the unintended conse-

quence of negatively impacting minority small businesses and 8(a)

firms.”); id. at 25,765 (statement of Rep. Jackson-Lee) (“we are not

disturbing the 8(a) programs”); id. at 25,766 (statement of Rep. Mink)

(expressing concern about the HUBZone Program’s effect on the 8(a)

Program and reliance upon SBA’s assurances that “that in administering

the HUBZone program, they would take steps necessary to assure that

8(a) was not adversely impacted”).

10 Indeed, after enactment of the HUBZone Program without inclusion of the explicit

parity provision, SBA originally promulgated regulations directing contracting officers to

preserve existing 8(a) contracts; then to prioritize small business concerns qualified under

both the 8(a) and HUBZone Programs; and then to consider other 8(a) concerns before

being directed to set aside a contract for competition restricted to HUBZone businesses.

See HUBZone Empowerment Contracting Program, 63 Fed. Reg. 31896, 31908 (1998);

13 C.F.R. § 126.607(b) (effective from June 11, 1998 to Aug. 29, 2005). As noted earlier,

the regulations were amended in 2005.

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Accordingly, the legislative history comports with the conclusion re-

flected in SBA’s regulations that the HUBZone statute need not be read to

compel the prioritization of awards under the HUBZone Program over

those under the 8(a) and SDVO Programs. 11 Our review of the text, struc-

ture and legislative record all support the conclusion that the HUBZone

statute may fairly be read to mandate only that contract opportunities set

aside for HUBZone concerns be awarded on the basis of restricted compe-

tition if the rule of two is met.

V.

Our conclusion that the SBA’s regulations we have reviewed are rea-

sonable is binding on all Executive Branch agencies, notwithstanding any

GAO decisions to the contrary.

First, the statute that authorizes the Comptroller General to decide bid

protests provides the Comptroller General with the power only to make

“recommendations” as to how an Executive Branch agency should resolve

bid protests submitted to the Comptroller General. See 31 U.S.C. § 3554

(2006); see also id. § 3556 (2006) (“This subchapter does not give the

Comptroller General exclusive jurisdiction over protests, and nothing

contained in this subchapter shall affect the right of any interested party to

file a protest with the contracting agency or to file an action in the United

States Court of Federal Claims.”). Neither that statute nor GAO’s regula-

tions implementing it provide GAO with the authority to overrule or

invalidate the properly-promulgated regulations of an Executive Branch

11 Since enactment of the HUBZone Program in 1997, Congress has on other occasions

considered whether to prescribe the relationship among the small business programs and

has not done so. In 2002, Senator John F. Kerry introduced legislation that would have

created a priority for small business concerns that were both 8(a) participants and HUB-

Zone concerns. See Combined 8(a) and HUBZone Priority Preference Act, S. 1994, 107th

Cong. (as introduced, Mar. 6, 2002). In 2003, when the House considered the Veterans

Entrepreneurship and Benefits Improvement Act, an early version of the bill would have

prioritized the various SBA assistance programs in the order of 8(a), SDVO, and then

HUBZone. See H.R. 1460, 108th Cong. sec. 3(a), § 37(a)–(b) (as passed by the House,

June 24, 2003). After a short debate that did not include any significant discussion of the

priority provision, the bill was passed by the House. See 108 Cong. Rec. 15,741 (2003).

On the Senate side, however, the provision was struck without debate or explanation. See

Veterans Benefits Act of 2003, Pub. L. No. 108-183, 117 Stat. 2662; 108 Cong. Rec.

29,614–15 (2003).

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33 Op. O.L.C. 284 (2009)

agency. See id. § 3554; 4 C.F.R. § 21.8 (2009) (implementing 31 U.S.C.

§§ 3551–3556 (2006)).

Second, the Comptroller General is an officer of the Legislative

Branch. See Bowsher v. Synar, 478 U.S. 714, 727–32 (1986) (holding

Comptroller General is subject to the control of Congress and therefore

may not exercise non-legislative power). “Because GAO is part of the

Legislative Branch, Executive Branch agencies are not bound by GAO’s

legal advice.” Whether Appropriations May Be Used for Informational

Video News Releases, 29 Op. O.L.C. 74, 74 (2005) (“Bradbury Memo”)

(citing Bowsher, 478 U.S. at 727–32).

Our Office has on many occasions issued opinions and memoranda

concluding that GAO decisions are not binding on Executive Branch

agencies and that the opinions of the Attorney General and of this Office

are controlling. See Bradbury Memo, 29 Op. O.L.C. at 74 (“This memo-

randum is being distributed to ensure that general counsels of the Execu-

tive Branch are aware that the Office of Legal Counsel (‘OLC’) has

interpreted this same appropriations law in a manner contrary to the views

of GAO, and to provide a reminder that it is OLC that provides authorita-

tive interpretations of law for the Executive Branch.”); Memorandum for

Lois J. Schiffer, Assistant Attorney General, Environment and Natural

Resources Division and for John D. Leshy, Solicitor, Department of the

Interior, from Todd David Peterson, Deputy Assistant Attorney General,

Re: Administrative Settlement of Royalty Determinations at 6 n.7 (July 28,

1998) (“Although the opinions and legal interpretations of the GAO and

the Comptroller General often provide helpful guidance on appropriations

matters and related issues, they are not binding upon departments, agen-

cies, or officers of the executive branch.”); Statutory Authority to Con-

tract with the Private Sector for Secure Facilities, 16 Op. O.L.C. 65, 68

n.8 (1992) (“We note that while GAO reports are often persuasive in

resolving legal issues, they, like opinions of the Comptroller General, are

not binding on the Executive branch.”); Memorandum for Donald B.

Ayer, Deputy Attorney General, from J. Michael Luttig, Principal Deputy

Assistant Attorney General, Office of Legal Counsel, Re: Department of

Energy Request to Use the Judgment Fund for Settlement of Fernald

Litigation at 8 (Dec. 18, 1989) (“This Office has never regarded the legal

opinions of the Comptroller General as binding upon the Executive.”);

Memorandum for Joe D. Whitley, Acting Associate Attorney General,

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from William P. Barr, Assistant Attorney General, Office of Legal Coun-

sel, Re: Detail of Judge Advocate General Corps Personnel to the United

States Attorney’s Office for the District of Columbia and the Require-

ments of the Economy Act (31 U.S.C. §§ 1301, 1535) at 2 n.2 (June 27,

1989) (“The Comptroller General is an officer of the legislative branch,

and historically, the executive branch has not considered itself bound by

the Comptroller General’s legal opinions if they conflict with the opinions

of the Attorney General and the Office of Legal Counsel.” (internal cita-

tion omitted )).

VI.

We accordingly conclude that SBA’s regulations regarding the relation-

ship among the 8(a), HUBZone, and SDVO Programs constitute a permis-

sible construction of the Act.

JEANNIE S. RHEE

Deputy Assistant Attorney General

Office of Legal Counsel

303