Sigmatech, Inc. v. United States
17-183
| Fed. Cl. | Jan 5, 2018Background
- USASAC procured FMS/programmatic support under BPA with incumbent Sigmatech; Army issued Solicitation W91CRB-16-R-0001 (Dec. 11, 2015) as a small-business set-aside but SBA OHA ruled NAICS was incorrect and ordered amendment to NAICS 541611 ($15M receipts).
- Army cancelled that solicitation, issued an RFI (June 6, 2016) under NAICS 541611; 27 vendors responded and USASAC evaluators identified eight small businesses as potentially capable in an August 9, 2016 Market Research Report.
- Contracting Officer relied on the Market Research Report and signed a Small Business Coordination Record (Aug. 10, 2016) concluding the Rule of Two was satisfied and issued Solicitation W91CRB-16-R-0039 (Nov. 1, 2016) as a small-business set-aside.
- Sigmatech (not a small business and the incumbent) challenged the set-aside in the Court of Federal Claims alleging the Rule of Two analysis was arbitrary and capricious, and that the Army failed to implement prior corrective action; cross-motions for judgment on the administrative record were filed.
- The court reviewed whether the Contracting Officer had a reasonable expectation of receiving offers from at least two responsible small businesses at fair market prices and whether that decision was arbitrary and capricious.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Rule of Two set-aside decision was arbitrary and capricious | Sigmatech argued the eight identified small businesses lacked experience, personnel, and capacity to perform the $95M solicitation; CO relied on unverified, self-reported RFI answers and did not assess fair-market price or subcontractor reliance | Government argued the Market Research Report, based on six independent evaluations, provided a reasonable basis to expect ≥2 responsible small-business offers at fair market prices; CO need not determine responsibility or full price reasonableness pre-solicitation | Court held CO's decision was reasonable and not arbitrary or capricious; set-aside upheld |
| Whether CO conflated Rule of Two with responsibility determination | Sigmatech claimed CO effectively judged responsibility and capability of specific firms pre-award, which is improper | Government said Rule of Two requires only a reasonable expectation that two responsible small businesses will submit offers, not identification of specific responsible firms | Court agreed with Government: Rule of Two does not require full responsibility determinations pre-award |
| Whether CO had to analyze subcontractor reliance and ability to perform at fair market prices | Sigmatech argued CO should have evaluated team compositions and whether firms could perform without excessive subcontracting and still meet FAR 52.219-14 limits | Government said such analyses concern responsibility and price reasonableness, and are premature during set-aside decision; FAR permits later scrutiny after proposals | Court held CO was not required to perform detailed subcontractor/price analyses at the set-aside stage |
| Standing and jurisdiction to adjudicate the protest | Sigmatech claimed prospective bidder status and prejudice as incumbent excluded from small-business competition | Government did not contest jurisdiction; administrative remedies and GAO protest were addressed | Court found it had jurisdiction and Sigmatech had standing and prejudice because it was an incumbent and would be barred from competing under the set-aside |
Key Cases Cited
- Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83 (threshold jurisdictional requirement)
- Res. Conservation Grp. v. United States, 597 F.3d 1238 (COFC jurisdiction over procurement stages)
- Lujan v. Defs. of Wildlife, 504 U.S. 555 (standing burden on party invoking federal jurisdiction)
- Myers Investigative & Sec. Servs. v. United States, 275 F.3d 1366 (standing under §1491(b)(1))
- Labatt Food Serv., Inc. v. United States, 577 F.3d 1375 (prejudice requirement for standing)
- Bannum, Inc. v. United States, 404 F.3d 1346 (RCFC 52.1 / administrative-record review)
- Motor Vehicle Mfrs. Ass’n v. State Farm, 463 U.S. 29 (arbitrary and capricious standard)
- Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324 (plaintiff’s burden under APA review)
- Advanced Data Concepts, Inc. v. United States, 216 F.3d 1054 (deferential review of agency procurement decisions)
- Res-Care, Inc. v. United States, 735 F.3d 1384 (upholding CO's Rule of Two analysis based on RFI materials)
- Adams & Assocs., Inc. v. United States, 741 F.3d 102 (Rule of Two does not require separate price-reasonableness/responsibility analysis pre-award)
- R&W Flammann GmbH v. United States, 339 F.3d 1320 (court will not substitute its business judgment for a reasonable CO decision)