This month’s Bid Protest Roundup focuses on a recent U.S. Court of Federal Claims decision involving the limitations of the government’s deference defense and a U.S. Government Accountability Office (GAO) that involved the proper application and discretionary nature of the so-called close-at-hand principle.
Consolidated Safety Services, Inc. v. U.S.
In Consolidated Safety Services, the Court of Federal Claims rebuked the National Oceanic and Atmospheric Administration for a solicitation’s improper North American Industry Classification System code assignment.[i] The court held that NOAA’s assignment was arbitrary, capricious and contrary to Small Business Administration regulations.
Consolidated Safety Services is a reminder that agencies do not have unlimited discretion when selecting NAICS codes for their procurements. More broadly, the case reflects that even a generally reasonable agency decision may be considered arbitrary and capricious if the agency neglects to adhere to relevant statutes and regulations. Statutes and regulations provide essential criteria that an agency must strictly follow and by which its decisions are assessed.
Overview of NAICS Codes
The NAICS codes consist of six‑digit numbers and classify businesses based on their primary economic activities.
The SBA uses NAICS codes to assess businesses’ eligibility for small business contracting preferences in government procurement. The SBA assigns specific NAICS codes to industries and sets size standards based on either annual revenue or number of employees, depending on the industry.
Relevant Facts
On February 17, NOAA issued a solicitation that contemplated the award of a single blanket purchase agreement with the express purpose of obtaining “necessary scientific, technical, and administrative services to efficiently and effectively support the mission and goals of [the National Centers for Coastal Ocean Science].”[ii]
The agency classified the solicitation under the NAICS code for environmental consulting services, which carries a size standard of $19 million in average annual receipts. The disappointed offeror, Consolidated Safety Services, or CSS, could not compete for the procurement because its annual receipts exceeded that amount.
CSS filed a NAICS Appeal with the SBA’s Office of Hearings and Appeals, or OHA, arguing that the solicitation primarily involved “performing research, not advising the agency about research.”[iii] Thus, CSS argued, the agency should have categorized the solicitation under the NAICS code for research and development which has a size standard of 1,000 employees and under which CSS would be considered a small business.
The OHA affirmed the agency’s selection of the NAICS code for environmental consulting services. Subsequently, CSS filed a bid protest lawsuit in the Court of Federal Claims, maintaining that the solicitation should be classified under the code for research and development.
Court of Federal Claims’ Analysis
In a lengthy opinion, Judge Matthew Solomson methodically dissected NOAA’s and OHA’s analysis, overturning OHA’s decision and holding that the agency’s environmental consulting services NAICS code designation was contrary to SBA regulatory requirements and that the research and development NAICS code was more suitable.
The court ruled that the solicitation predominantly sought scientific research and experimental development services. This conclusion was evidenced by dozens of research-oriented tasks and subtasks within the solicitation and the fact that over 85% of the solicitation’s labor hours were allocated to various types of research scientists.
Critically, the court explained that SBA regulations do not provide the government with maximum discretion to select any reasonable NAICS code — the contracting officer must designate “the proper NAICS code and corresponding size standard in a solicitation, selecting the single NAICS code which best describes the principal purpose of the product or service being acquired.”[iv]
While the court acknowledged that the SBA regulations do not require the contracting officer to select the perfect NAICS code and reasonable minds may disagree, it found that the SBA regulations do require the court to consider whether the contracting officer and OHA reasonably concluded that the NAICS selected was the best description of the solicitation. Thus, the government cannot substantiate its selection of a particular NAICS code simply by asserting that it broadly aligns with the procurement or because the selection is deemed adequately suitable for government work.
Further, SBA regulations limit the government’s discretion by noting that procurements are generally classified by NAICS code according to the component that accounts for the greatest percentage of contract value.[v]
It is against these limitations that the court considered whether the agency had properly determined the NAICS code.
The court found that NOAA and OHA erred in concluding that the solicitation did not seek research and development services. In its analysis, the court looked to the definition of “research” in the NAICS manual, the solicitation provisions that addressed providing administrative, scientific, and technical support to ensure timely delivery of research products, and at the specific tasks and subtasks listed in the solicitation that repeatedly mentioned research in some capacity.
In comparison, the solicitation listed very few references to consulting services. In the court’s assessment, neither NOAA nor OHA adequately explained, with reference to the criteria imposed by the SBA regulations, why the NAICS environmental consulting services code best described the work solicited, when the NAICS research and development code was a much better match.
The court was especially critical of OHA’s sparse, two-page analysis, which it found erroneously ignored important facts and solicitation details. As the judge stated, OHA’s decision “flatly ignores scores of tasks in the Solicitation that naturally fit the definitions of ‘research’ and ‘experimental development.’”[vi]
The court also took OHA to task for failing to grapple with its own conflicting case precedent on when NAICS research codes should apply. Due to the multiple factual errors, legal flaws, and omissions in OHA’s cursory decision affirming NOAA’s consulting services NAICS code, the court held that OHA acted in an arbitrary and capricious manner.
The court then enjoined the procurement from proceeding under the improper NAICS code and remanded the case to OHA for reconsideration.
Takeaways
Although Consolidated Safety Services centers on agency NAICS code assignment, it considers the larger theme that agencies are required to adhere to certain regulations and government discretion. This case demonstrates that there are limits to the government’s deference defense. Agencies must offer reasoned justifications rooted in concrete facts and regulatory selection criteria. Explanations that ignore key evidence or past precedent will likely not survive judicial scrutiny.
VectorCSP LLC
VectorCSP LLC serves as a reminder of the boundaries of the “close-at-hand” principle in evaluating information known to agency personnel but not explicitly included in a proposal.[vii] Vector, the protestor, argued — unsuccessfully — that proposal evaluators should factor their prior knowledge of a predecessor contract, performed by Vector’s subcontractor, into their evaluation of its proposal.
This protest emphasizes the risk of relying on evaluators’ presumed knowledge instead of submitting a thoroughly detailed and comprehensive proposal.
Close-at-Hand Principle
The GAO recognizes the so-called close-at-hand principle, which requires agency evaluators to use their own knowledge when evaluating past performance on work that is “too close at hand” to the current procurement, even if the past performance is not explicitly mentioned in the company’s proposal.
For example, if an offeror mentions a previous contract, evaluators may already know details and quality of the past performance under that contract due to their personal experience. In such cases, agencies must use their existing knowledge during the evaluation process.
However, this principle does not require agencies to actively seek information beyond what is provided in the company’s proposal for the current procurement. Offerors are responsible for including detailed information in their proposals to ensure a thorough evaluation. Additionally, the GAO has stated that the close-at-hand principle applies to past performance, but not technical matters.
Vector’s Protest
In Vector, the U.S. Coast Guard issued a task order request for proposals seeking contractor engineering support services. The solicitation outlined three evaluation factors in descending order of importance: corporate experience, management approach, and price.
Under corporate experience, offerors were required to include up to four references showing experience similar in complexity and scope to the solicitation, with one reference showing the offeror had performed as the prime contractor.
The agency evaluated the proposals and selected THOR Solutions LLC based on its corporate experience and management approach, despite its higher price.
Vector filed a bid protest, alleging disparate and unreasonable evaluation of the technical proposals, and a flawed best-value tradeoff. Specifically, under the corporate experience evaluation, Vector challenged the agency’s contention that its second reference, related to the proposed subcontractor’s performance on a predecessor contract, was not relevant.
The Coast Guard argued that Vector’s proposal failed to provide the required documentation to consider the scope of the work actually performed, as specified in the solicitation.
The GAO disagreed with Vector on all allegations. Particularly relevant was its discussion of the “close‑at‑hand” issue.
Vector argued that the agency was unreasonable in deeming the contract reference about its proposed subcontractor as irrelevant and asserted that the agency “entirely ignore[d] that the contract reference is the predecessor to the incumbent contract.”[viii] Vector claimed that this information was “too close at hand” to disregard.
However, the GAO clarified that “close-at-hand” information is limited to past performance and does not extend to an experience evaluation. Evaluation under a corporate experience factor is distinct from evaluation of past performance—Under corporate experience, agencies consider an offeror’s technical ability to do the work.
The solicitation at issue in Vector provided that references for corporate experience should show “similar technical difficulty, show relevant requirements, and show the company’s experience providing . . . capabilities similar to the requirements of the solicitation.”[ix]
In contrast, evaluation under a past performance factor often focuses on the quality of the work performed.
Furthermore, it is the offeror’s responsibility to submit a well-written proposal that can be adequately evaluated; the agency is not obligated to consider close-at-hand information. Here, Vector had failed to provide the required documentation to be properly evaluated. Thus, the allegation was denied.
Takeaways
Vector illustrates the importance of providing comprehensive details, descriptions and explanations in proposals, rather than hoping evaluators will supplement what is provided with their personal knowledge. Given the discretionary nature of the close-at-hand principle, relying on evaluators to fill gaps in a proposal with their unstated knowledge is risky.
While the close-at-hand doctrine may require agencies to consider relevant past performance experience not explicitly referenced in a proposal, under certain circumstances, the doctrine is limited only to past performance. Although corporate experience is very similar to past performance, the GAO has consistently held that they are different things, and the close-at-hand doctrine does not apply to corporate experience evaluations.
Even for past performance evaluations, the close-at-hand doctrine applies only in instances where the evaluators have personal knowledge of the past performance and where the protester did not bear the burden of providing more information in its own proposal. There is no substitute for a well-written proposal. If citing a previous contract with which the agency is familiar, offerors should do more than mention the name or number and assume that the similarities are apparent. Offerors should thoroughly explain why the previous contract is relevant and how it correlates to the instant requirement.
For IDIQ contracts or BPAs, documentation of specific task orders performed may be necessary. Offerors should not just reference the overall vehicle and expect evaluators to make the connection; they should include all relevant documentation.
[i] Consol. Safety Servs., Inc. v. U.S., No. 23-521C, 2023 WL 6173385 (Fed. Cl. Sept. 22, 2023).
[ii] Id. at *4.
[iii] Id. at *5.
[iv] Id. at *2 (citing 13 C.F.R. § 121.402(b)).
[v] Consol. Safety Servs. Inc., No. 23-521C, 2023 WL 6173385 at *2 (citing 13 C.F.R. § 121.402(b)(2)) (citation omitted).
[vi] Id. at *10.
[vii] VectorCSP, LLC, B-421764, B-421764, 2023 WL 6477744 (Sept. 27, 2023).
[viii] Id. at *8.
[ix] Id. at *2.