Rlb Contracting, Inc. v. United States

In the United States Court of Federal Claims
Nos. 14-651C
(Filed: October 3, 2014)

*********************
RLB CONTRACTING, INC.,
Pre-Award Bid Protest;
NAICS code 237990;
Plaintiff, Small business size
standard; Small Business
v. Administration Office of
Hearings and Appeals;
THE UNITED STATES, Injunctive relief

Defendant.

*********************

Michael H. Payne, Philadelphia, PA, for plaintiff, with whom was
Robert G. Ruggieri, of counsel.

Sarah M. Valenti, Civil Division, Commercial Litigation Branch,
Department of Justice, Washington, DC, with whom were Stuart F. Delery,
Assistant Attorney General, Robert E. Kirschman, Jr., Director, and Deborah
A. Bynum, Assistant Director, for defendant. Antonio T. Robinson, U.S.
Department of Agriculture, of counsel.

OPINION

This is a bid protest of the United States Department of Agriculture’s
(“USDA” or “agency”) selection of a $33.5 million dollar size standard for this
small business set-aside procurement and the subsequent affirmance of that
decision by the Small Business Administration (“SBA”) Office of Hearings
and Appeals (“OHA”). The parties submitted cross-motions for judgment on
the administrative record, and oral argument was held on September 23, 2014.
We announced at the conclusion of oral argument that we would sustain
plaintiff’s protest, and we entered an injunction that same day. We explain our
reasoning more fully below.

1
 BACKGROUND

On June 23, 2014, USDA’s Natural Resource Conservation Service
(“NRCS”) issued AG-7217-S-14-0007 for the South Lake Lery Shoreline and
Marsh Restoration Project in Plaquemines Parish, Louisiana. Administrative
Record 1 (“AR”).1 The contract is to be a firm fixed price, and the agency
estimates the project to be worth more than $10 million. The contract has not
yet been awarded.

The purpose of the project is to restore much of the shoreline of Lake
Lery, which has receded after major hurricanes hit the area in the last decade,
and to create a healthy and stable marsh on the border of the lake. The
solicitation calls for the creation of 513.9 acres of interior marsh, divided into
five cells on the marsh side of the Lake Lery shoreline, along with 35,831 feet
of shoreline restoration on the southern and western rim of the lake. AR 347.
The solicitation contains 12 items of work to be performed and separately
priced in the offerors’ proposals.

Item No. Work
1 Mobilization and Demobilization
2 Contractor Quality Control
3 Construction Surveys
4 Excavation, Access
5 Earthfill, Lake Rim Embankment
6 Earthfill, Containment Dikes
7 Excavation, Marsh Creation Dredging
8 Excavation, Degrade Containment Dikes
9 Geotextile
10 Staff Gauges

1
The agency had earlier solicited the same services, but that procurement was
cancelled and the agency rebid the contract voluntarily after a protest on
unrelated grounds at the Government Accountability Office (“GAO”).

2
 11 Field Office
12 Structure Removal (Additive Item)

AR. 5. The items are to be priced as follows:

Item No. Quantity Unit
1 1 Lump Sum
2 1 Lump Sum
3 1 Lump Sum
4 1 Lump Sum
5 35,831 LF [Linear Feet]
6 48,154 LF [Linear Feet]
7 3,983,600 CY [Cubic Yards]
8 23,571 LF [Linear Feet]
9 27,6444 SY [Square Yards]
10 48 Each
11 1 Lump Sum
12 8 Each

Id.

With respect to past performance, the solicitation asks for information
regarding six areas of experience:

1. Experience with hydraulic dredging activities for marsh
creation including management of marsh creation fill areas in a
costal environment.
2. Experience with construction of earthen embankments and
containment dikes in a coastal environment.
3. Experience with excavation activities for flotation access in
a costal environment.
4. Experience with the local area and the unique conditions

3
 including tides, weather and soils in costal Louisiana or similar
coastal marine environments.
5. The ability to develop and administer quality control
activities.
6. The ability to develop, administer and monitor safety
activities.

AR 49. Similar information is sought for subcontractors as well.

Offerors are also required to include a “narrative with a detailed
approach to execute the construction portion” of the work. AR 52. The
narrative is required to address, among other things, the following items:

1. Means and methods to complete excavation for flotation
access channels.
2. Means and methods for installation of geotextile.
3. Management activities for construction operations and NRCS
field office location . . . .
4. Means and method to perform all surveying activities.
5. Means and methods for construction of earthen
embankment/lake rim and containment dikes.
6. Means and methods to complete hydraulic dredging activities
for marsh creation including management of marsh creation fill
areas within the designated containment areas.
7. Means and methods of installation, protection, and
maintenance of staff gauges.
8. Plans for the protection of existing vegetation, structures and
other utilities.

AR. 53. In addition, the Technical Approach information must include a
detailed schedule with a progress curve which identifies milestones and
activities.

The solicitation does not contain much specificity as to what types of
equipment or methods are to be used. Questions submitted by offerors and the
answers by the agency, incorporated by amendment into the solicitation, make
clear that the agency leaves it up to the offerors to “use any means or methods
they choose as long as it complies with the plans and specifications.” AR 283
(Answer to question regarding whether the lake rim crest could be formed with
a bucket); see also AR 309 (question and answer regarding use of hydraulic
dredging for the access channel), 310 (question and answer regarding using

4
land-based equipment on the lake rim embankment). The work specifications,
however, do contain certain requirements regarding how the work is to be
performed, such as a limitation on placing land-based equipment on or near the
lake rim embankments and dikes. E.g., AR 164-65.

The contracting officer (“CO”) set the contract aside for small
businesses, choosing North American Industry Classification System
(“NAICS”) code 237990, Other Heavy and Civil Engineering Construction,
as the applicable industry category. The SBA-set small business size standard
for NAICS code 237990 was, at the time, $33.5 million. 13 C.F.R. § 121.201
(2013). That code also requires consideration of a possible exception,
however, for contracts which are comprised primarily of dredging and surface
clean up. For those contracts, a size standard of $25.5 million in annual
receipts applied. Id.2 Also included in the dredging exception is a requirement
that the small business “perform at least 40 percent of the volume dredged with
its own equipment or equipment owned by another small dredging concern.”
Id. n.2. The CO concluded that the exception did not apply.

Plaintiff first challenged the decision not to apply the dredging
exception through a NAICS code appeal to the SBA, filed on July 2, 2014.
Another prospective offeror, Inland Dredging Co., LLC (“Inland”) filed a
similar appeal, and the two were consolidated at OHA. RLB and Inland
argued that between 85-95 percent of the man-hours of work required would
be devoted to dredging activity, which would require, according to them, either
a mechanical or hydraulic dredge. They thus argued that the contract should
have been classified under the dredging exception because dredging was the
primary purpose of the work.

The agency responded that the solicitation required not just dredging
but also construction of embankments and dikes as well as other work not
classified as dredging. In the agency’s view, the primary purpose of the
project was general construction. USDA presented OHA with examples of
what it would consider to be a typical dredging contract, which would contain
only 1 or 2 work items (mobilization and demobilization) other than dredging.
AR 446 (OHA decision reciting the parties’ arguments). The agency also

2
We cite here to the 2013 version of the Code of Federal Regulations for the
size standard because they were recently updated for NAICS code 237990.
For 2014 and following, they are now $36.5 million with a $27.5 million cap
for dredging projects.

5
pointed to the fact that the solicitation does not require offerors to excavate in
any particular manner, and thus the additional work items which the appellants
claimed to require dredging should not be considered controlling because other
methods might be used. The agency cited specifically the potential use of
“marsh buggy excavators” instead of floating dredge barges as an alternative.
AR 446-47. USDA rejected the appellants’ contention that more than 80
percent of the work would be dredging, arguing instead that only 9.6 percent
of the man hours would be required for dredging, which would represent 39.4
percent of the total labor cost. AR 376-77 (Agency response to SBA appeal),
AR 360 (Agency statement in support of response to SBA appeal). In support
of those figures, the agency attached a spreadsheet of labor cost and labor
hours broken out by work item, based on a 12 hour workday.3 See AR 354-55
(12 hour spreadsheet); AR 360 (“See attached spreadsheet analysis”).

RLB asked the OHA administrative law judge to allow it to file a reply
in order to correct a mistake of fact, which it asserted was imbedded in the
agency’s response. RLB asserted that the spreadsheet submitted by the agency
was inaccurate because it was based on a 12 hour day with only one dredge
barge operator. RLB attached an updated, NRCS-created spreadsheet
reflecting a 24 hour day and 7 persons operating the dredge, which showed
dramatically different percentages of cost and man-hours. See AR 447. That
request was denied because OHA had not asked for a reply.

OHA denied the appeal by written decision on July 18, 2014. The OHA
judge started with the description of code 237990 in the NAICS Manual and
found that the CO had committed no clear error in deciding that the “‘principal
purpose of the product or service being acquired’” was best reflected in the
general description of 237990 and not the more specific dredging and surface
clean up exception. AR 449 (quoting 13 C.F.R. § 121.402(b)). Although
acknowledging that the “‘procurement is usually classified according to the

3
That sheet also assumed 1 barge operator for the dredging barge and hydraulic
dredge, an assumption the agency has since disavowed. It is not clear from
what source the agency drew the 39.4 percent figure for labor costs. In the
attached 12 hour analysis, the labor costs associated with dredging are only
10.6 percent. See AR 357,; AR 407 (Attachment 4 to the Agency’s response
to RLB’s appeal at SBA). A later conducted 24 hour analysis shows 37.2
percent of labor costs attributable to dredging, 38.6 percent of total hours, and
42.6 percent of labor days. See AR 356. That spreadsheet was not attached
to the agency’s submissions to the SBA, however.

6
component which accounts for the greatest percentage of contract value’,” the
OHA judge declined to do a quantitative comparison as invited by plaintiff.
Instead he relied on the narrative elements of the solicitation, including the title
of the project, and the general description of the work items. Seeing work
elements such as “excavation” and “construction of earthen embankments,” he
concluded that, although “dredging activities account for a large portion of the
services sought,” the project also “requires a substantial amount of other types
of work.” AR 450. The result of this analysis was that “the Dredging
exception is not appropriate where a procurement requires so many other
services in addition to the dredging.” Id. The opinion makes no effort to
quantitatively contrast “a large portion” with “a substantial amount.”

Electing to forego bidding on the project under the larger size standard,
plaintiff filed a pre-award protest in this court on July 24, 2014, challenging
the OHA decision and the CO’s original decision not to apply the dredging
exception to NAICS code 237990 as arbitrary, capricious, and otherwise not
in accordance with the law. Defendant agreed to stay award of the contract
pending resolution of the protest, and we thus denied plaintiff’s motion for a
preliminary injunction as moot. The parties filed cross-motions for judgment
on the administrative record, and we heard oral argument on September 23,
2014. As we announced at the conclusion of oral argument, we agree with
plaintiff that both the agency and OHA acted irrationally and otherwise
contrary to law in their consideration of whether to apply the dredging
exception. We issued an injunction later that day, enjoining award of the
contract and directing the agency to reconsider whether to apply the dredging
exception in accordance with our guidance provided in the order. RLB
Contracting, Inc. v. United States, No. 14-651C (Fed. Cl. Sept. 23, 2014)
(order and permanent injunction). The reasoning behind that order is
contained herein.

DISCUSSION

I. Legal And Regulatory Framework

We have jurisdiction to review the actions of agencies taken “in
connection with a procurement or a proposed procurement.” 28 U.S.C. §
1491(b)(1) (2012). We review such actions pursuant to the administrative
review standards of the Administrative Procedures Act (“APA”). Id. §
1491(b)(4) (“the court[] shall review the agency’s decision pursuant to the
standards set forth in section 706 of title 5” (the APA)). We may only set
aside agency action when it is found to be “arbitrary, an abuse of discretion,

7
capricious, or otherwise not in accordance with the law.” 5 U.S.C. 706(2)(A)
(2012). Decisions of SBA’s OHA are reviewable under this grant of
authority, subject to the same standard. InGenesis, Inc. v. United States, 104
Fed. Cl. 43, 48 (2013) (citing Ceres Envtl. Servs., Inc. v. United States, 52
Fed.Cl. 23, 33 (2002)). We afford the SBA deference in its NAICS code
determinations, and likewise the decisions of OHA, as it is the repository of
Congress’ delegated authority to give preference to small businesses in federal
contracting. See Ceres Envtl. Servs., 52 Fed. Cl. at 35-36. We will set an
OHA decision aside only if it lacks a rational basis or violates an applicable
statute or regulation. Id. at 35.

The SBA’s regulations instruct that, in making a size standard
determination, the contracting officer must select “the single NAICS code
which best describes the principal purpose of the product or service being
acquired.” 13 C.F.R. § 121.402(b) (2014). “Primary consideration is given to
the industry descriptions in the [NAICS Manual], the product or service
description in the solicitation . . . , the relative value and importance of the
components of the procurement making up the end item procured, and the
function of the goods or services being purchased.” Id. § (b)(1). The
regulation goes on to further clarify that “a procurement is usually classified
according to the component which accounts for the greatest percentage of
contract value.” Id. § (b)(2). The Federal Acquisition Regulation (“FAR”)
parrots these requirements, reaffirming that classification is normally a product
of the “component which accounts for the greatest percentage of contract
value.” 48 C.F.R. § 19.303(a)(2) (2014).

II. The Parties’ Arguments

Plaintiff argues that the agency and OHA erred in failing to give
meaningful consideration to which items of work will require dredging and
whether that work makes up “the greatest percentage of contract value.” 13
C.F.R. § 121.402(b). Plaintiff contends that work item 7, Dredging, Marsh
Creation, which is indisputably dredging work, is sufficient by itself to
constitute the majority of the work. In addition, it contends that items 5 and
6, the earthfill items, require use of marine-based dredging due to the
solicitation’s particular prohibition against using equipment atop the 25-foot
berm or within 15 feet of the bottom of the lake rim embankment and

8
containment dikes.4 Because the site is adjacent to a lake and in a marshy area,
plaintiff argues that it impossible to do the work by any other means than
marine-based dredging.5 Plaintiff also points to the requirements for the Past
Performance and Technical Approach factors and argues that these are
consistent with dredging work. Thus, according to plaintiff, the solicitation is
asking for a description of how an offeror would perform dredging work for
these items.

Plaintiff next turns to the relative value of the items it considers to be
dredging. Plaintiff estimates that item 7 alone represents 65 percent of the
contract’s total value. Plaintiff adds item 4, “Excavation, Access,” because the
solicitation anticipates that it will be done via mechanical dredge. See AR 205
(“Excavation of the shoreline borrow/access channel shall be done using a
barge-mounted bucket dredge.”). Plaintiff also adds items 5 and 6, the earthfill
for the lake rim embankment and containment dikes, because they represent
primarily dredging work as well in that they assume the placement of dredged
materials. Item 8, Excavation, Degrade Containment Dikes, is added to
plaintiff’s calculus because it, like item 4, requires excavation by mechanical
dredge. These add items add up to 85 percent of the cost of the work,
according to plaintiff. RLB also posits that mobilization and demobilization
ought to be included because the great majority of that item relates to bringing
the dredging equipment to the site and later removing it. This would bring the
total to 90 percent of the contract’s value.

Plaintiff then turns its attention to a 24 hour-a-day labor analysis
conducted by the agency but not presented to the OHA judge, AR 356-57.
Plaintiff points out that Item 7 alone accounts for 38.6 percent of the man-
hours on the project. Adding in items 5 and 6 brings the result to 76.25
percent of the work. The number approaches 100 percent if all of plaintiff’s
allegations are credited. Plaintiff asked permission to include it in a reply brief

4
Those requirements are found at AR 164 and 165 in the specifications for the
work items.
5
Plaintiff spent a good deal of time in its briefing and at oral argument
explaining what constitutes mechanical and hydraulic dredging and why this
work must be done by those methods. In support, it cites the United States
Corps of Army Engineers’ definition of a “dredge” and “dredging.” This is
added to counter defendant’s argument that use of certain mechanical
excavation equipment should not be considered dredging.

9
to OHA, but that request was denied, which makes the OHA decision all the
more arbitrary in plaintiff’s view. In the face of these facts, plaintiff argues
that it was irrational for the CO and the SBA to have considered this work
anything other than a dredging project.

Plaintiff also references an internal government cost estimate, which
shows that items 4 and 7 alone make up 58 percent of the estimated cost, and
that including items 5 and 6 bring the dredging percentage of costs to 81
percent. This is supported by the cost totals of the contract first awarded and
then rescinded after the GAO protest on other grounds. That award showed
75 percent of the total cost attributable to item 7 by itself. Neither of these
items are present in the administrative record, however, and defendant
objected to them as neither present before the CO when she made her initial
NAICS code determination nor before the SBA on appeal.

Defendant answers these arguments by pointing out that the solicitation
characterizes the project as shoreline restoration and marsh creation, which,
according to defendant, demonstrates that more is involved than simple
dredging. Defendant argues that a literal reading of the elements of the
solicitation makes the CO’s and the SBA’s decisions reasonable on their face.
The sum of defendant’s argument is that this project is general construction
because it requires the construction of berms and dikes, the emplacement of
geotextile materials to stabilize the marshes, construction surveys, staff
gauges, and a field office. Defendant rejects plaintiff’s characterization of
items 5 and 6 because the solicitation does not specifically require dredging for
those items. It points to the questions and answers appended to the solicitation
and incorporated by amendment therein, in which the agency thrice states that
the contractor may choose the methods to accomplish the work. See AR 283,
309, 310.

Defendant further points the court to the CO’s Statement of Relevant
Facts to the OHA judge. In that document, the CO stated that she did market
research and reviewed historical data from prior NRCS marsh projects with
similar features. In doing so, she consulted the Office of Coastal Protection
and Restoration, the SBA, and the Army Corps of Engineers. She also
searched the government’s System of Award Management, AR 347, and
consulted the State Construction Engineer, who determined that the project
best fit the general construction description due to the “complexity of
completing the construction activities for constructing the containment dikes
and lake rim embankment with the types of soils that would be utilized and the
requirement to maintain these features during the entire contract duration.”

10
AR 347-48. The CO also noted that the project would have two wage rates,
one for dredging and one for general construction, and that dredging crews
would only be active less than 40 percent of the time “compared to a typical
construction crew being onsite for 60 percent of the time for the construction
of the earthen containment dikes and lake rim embankment.” AR 348.

Defendant defends the OHA decision as reasonable because OHA
considered the solicitation as a whole and found the work to be more akin to
general construction than dredging. The fact that the OHA judge did not have
the updated labor hour analysis was immaterial, according to defendant,
because the decision was supported by the solicitation itself. Defendant, in
fact, disclaimed the 12 hour analysis in its briefing and at oral argument, but
argues that it should not matter given that the reading of the solicitation
undertaken by the CO and the OHA judge was reasonable.6 In other words,
a quantitative analysis was unnecessary.

III. Neither USDA’s Nor SBA’s Decisions Were Reasonable

The size standard decisions by both agencies were flawed because the
record does not show that they gave proper consideration to whether dredging
constitutes the primary activity involved, which the regulations instruct is best
determined by the relative value of the items of work involved.

A. The Contracting Officer’s Determination Was Irrational

The CO’s statement of facts to the SBA is the best indicator of what
was in front of the agency when it made its initial size standard determination.
That statement makes clear that the agency relied primarily on the overall
purpose the project, “marsh creation and preservation,” in its classification of
this project as best fitting under the general description of construction
services found in NAICS code 237990. We note at the outset that marsh
creation and preservation is the ultimate end of the project, but that phrase
leaves ambiguous the presumptive means to achieve that end, which we view
as the more relevant concern for this exercise in taxonomy. I.e., the work
performed rather than the final outcome should be the focus of the inquiry
because the contractor is concerned with what its capabilities are.

6
We can understand why defendant disclaimed that analysis. The
specifications for item 7 in the solicitation specifically state that the hydraulic
dredge would operate 24 hours a day, seven days a week. AR 166.

11
 The CO contrasted the work required by the solicitation to what she
considered to be more typical dredging projects. Dredging contracts, in her
words, involve “pump and dump,” but the solicitation requires the contractor
to manage the discharge from the dredge in such a way as to “achieve a
‘uniform’ elevation as established by the plans and specifications” within the
marsh creation cells. AR 349. That, in conjunction with the other elements
not found in more routine clean up dredging operations led to the conclusion
that this project was something more than dredging, and thus it would be better
to classify it as a general construction project. The only quantitative
consideration was with regard to labor hours. The CO stated that item 7 would
make up less than 40 percent of man-hours while general construction would
take up the rest. That calculation assumes that the only dredging involved is
embraced by item 7.

We are not in a position to second guess the agency’s determination that
dredging was not strictly required for work components other than item 7.
Plaintiff may be correct that nearly all the work actually will have to be done
with dredging machinery, but the record does not give us access to that
determination. We assume, therefore, that the agency was reasonable in
concluding that the only work item which had to be presumed to constitute
dredging was item 7.7 The fact that there were eleven other work items,
however, says nothing about the relative importance of those items.

The regulations require an analysis of the relative weight of the
components of the contract, and absent compelling reasons, the contract should
be classified according to “the component which accounts for the greatest
percentage of contract value.” 13 C.F.R. § 121.402(b)(2); see Red River Serv.
Corp. v. United States, 60 Fed. Cl. 532, 548-49 (2004) (holding that a protestor
was entitled judgment on the administrative record because the CO failed to
give “primary consideration to the relative value and importance of the
components of the procurement.”)
The closest the CO came to this analysis was a look at the anticipated labor
hours per work item. She attributed 40 percent to dredging from item 7, and,
because this was less than the 60 percent of labor items attributed to the other
work items, she was satisfied that dredging was not the primary purpose. That
conclusion, taken at face value, is insufficient, however.

7
Item 7 is not in dispute between the parties. Both agree that it is dredging
work.

12
 The percentage of labor hours involved in a component of work is not
necessarily synonymous with its contribution to overall cost. Item 7 is priced
by the cubic yard of material dredged, not the man hours expended, if for no
other reason, we assume, because it involves the use of heavy equipment.8
Items 5, 6, and 8, as further example, will be paid by linear foot of the material
placed. But nowhere in the record is there any analysis of the total price of
item 7 in comparison to the other work items. The agency’s failure to quantify
in any meaningful way its ultimate conclusion violates the requirement of the
regulation. The regulations are clear, primary consideration is to be given to
the relative value of the components, i.e., what the agency will pay for each
item of work. No such calculation was made.

Plaintiff presented us with two documents at oral argument generated
by the agency but not included in the administrative record. One is a letter
sent to RLB after the award of the contract to another awardee prior to the
GAO protest. That letter presents the cost break down of the successful
awardee’s proposal. In it, item 7 constitutes nearly 75 percent of the total
price. The second document is a spreadsheet, given to plaintiff at its
debriefing following that initial award, which reflects the government’s
internal cost estimate compared with those of RLB and the awardee. The
agency estimates $13,942,600 for Marsh Creation Dredging, item 7, out of a
total estimated price of $24,280,506. Item 7 thus represented 57 percent of the
government’s anticipated cost.

The record is not entirely clear when the government’s internal cost
estimate was generated and whether the CO had it in front of her at the time
of her initial determination. It is important to remember, however, that the
initial contract award was cancelled after a protest at GAO. The agency issued
a new solicitation after correcting defects presented at GAO. Thus, at the time
of the re-solicitation, the agency knew it anticipated 57 percent of cost would
be attributable to item 7, and it knew that a prior awardee for the same work
had priced the dredging component at nearly 75 percent of the total cost.

8
The contract is to be a firm fixed price with a very simple pricing structure.
There are no line items for the cost of running the heavy machinery necessary
for dredging, the cost of paying skilled labor to operate it, or for the wear and
tear associated with its operation. Instead, the major work components are
priced by the quantity of material moved. We presume that is how one line
item could so predominate–the total costs in price per cubic yard of dredged
material.

13
These materials were thus part of the contract record in front of the agency and
should have been included in the administrative record. We deem them
included.

In light of this knowledge, it was irrational and not consistent with the
regulations for the CO to have not reconsidered the applicable size standard
and to not have done a more meaningful quantitative analysis. Although we
cannot make this determination for the agency, as we instructed in our order
of September 23, 2014, if item 7 is the most valuable item, primary
consideration must be given to it in determining if the exception applies. See
Red River Serv. Corp., 60 Fed. Cl. at 548-49.

B. The SBA Decision on Appeal Failed to Consider the Relative Value
of the Components of Work

Like the USDA before it, OHA’s decision on appeal is devoid of any
quantitative analysis of the relevant cost or importance of the work items.
Rather than confront the appellants’ arguments squarely regarding the value
of the dredging work, the OHA judge rested his conclusion on his reading of
the various tasks required and the overall purpose of the project. He did not
consider whether the CO properly determined the relative value of the
components nor did he even consider the admittedly incorrect labor hour break
down presented to him by the agency. Instead, he simply concluded, “Thus,
I hold that in order for this exception to apply, the services procured have to
be Dredging or Surface Cleanup Activities in nature. Merely because a
solicitation involves dredging work does not justify the use of the exception.”
AR 449. The first sentence is confusing because it leaves no room for a
comparative analysis. The second sentence is correct but begs the question,
“how much of the work is dredging?”.

For aught that appears, OHA seems to have treated as controlling the
fact that there are a number of work items, and arguably only one of them was
dredging. The judge recognized that dredging “activities account for a large
portion of the services sought” but found that unconvincing because “the
Project requires a substantial amount of other types of work in addition to
dredging.” AR 450. That simplistic and imprecise reasoning is too flabby to
meet the regulatory requirements. No consideration of the relative value of the
work items or which was the most representative component was undertaken.
We must therefore set the SBA OHA decision aside as irrational and contrary
to the applicable law.

14
IV. Plaintiff Is Entitled to Injunctive Relief

The plaintiff has shown that the agency and the SBA acted irrationally
and not in accordance with the applicable regulations. It remains to be seen
whether plaintiff is entitled to the extraordinary relief of an injunction. To be
entitled to an injunction, in addition to demonstrating success on the merits,
plaintiff must show that it will suffer irreparable harm absent an inunction, that
the balance of the hardships favors an injunction, and that it is in the public
interest to grant relief. PGBA, LLC v. United States, 389 F.3d 1219, 1228-29
(Fed. Cir. 2004). As discussed above, plaintiff has shown that USDA and
SBA acted irrationally and not in accordance with the law. We thus turn to the
other three factors.

A. Plaintiff Will Suffer Irreparable Harm

Plaintiff alleges that the total value of the contract is likely to exceed
$15 million and that it will be deprived of the opportunity to compete absent
an injunction. Plaintiff also argues that it and other offerors are harmed by
having to compete against larger firms that do not have to meet the dredging
exception’s 40 percent requirement, a requirement that RLB alleges it meets.9

Defendant responds by arguing that mere economic harm, or the loss
of opportunity to compete, is insufficient to establish irreparable harm.
Defendant cites to several prior decisions of this court wherein suggesting that
economic harm of the sort alleged by plaintiff is insufficient. See Sierra
Military Health Serv. United States, 58 Fed. Cl. 573, 582 (2003); Minor
Metals, Inc. v. United States, 38 Fed. Cl. 379, 381-82 (1997). Defendant
argues that the Supreme Court has cautioned against adopting a rule in which
injunctions are presumed because of the absence of other adequate remedies
at law. See Ebay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (holding
in the patent context that a general rule that, after a finding of infringement, an
injunction would issue was improper and that nothing the Patent Act presumed
to replace the traditional equitable test for injunctive relief).

Plaintiff responds with a string of other cases from this court in which
we have found the lost opportunity to compete and lost profits to be more than
mere economic harm. See, e.g., Mori Assocs., Inc. v. United States, 102 Fed.

9
As mentioned earlier, this is the requirement that 40 percent of the dredging
work be performed by a small business. 13 C.F.R. § 121.201 n.2.

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Cl. 503, 552 (2011); OAQ Corp. v. United States, 49 Fed. Cl. 478, 480 (2001);
Seattle Sec. Servs., Inc. v. United States, 45 Fed. Cl. 560, 571 (2000). We
conclude that, in the context of a bid protest, the loss of an opportunity to
compete for an award for which a party would not otherwise be disqualified
is sufficient injury to warrant injunctive relief.10 Defendant has offered no
reason to question plaintiff’s eligibility to bid, and plaintiff obviously has an
interest in limiting the competition to a smaller number of bidders, if that is
what the law requires.

B. The Balance of the Harms Weighs in Plaintiff’s Favor

Plaintiff argues that the loss of the opportunity to compete absent an
injunction will outweigh any harm to the agency or the public, especially
considering the public’s interest in fair and open competition in government
procurements.

Defendant answers that an injunction would undermine the SBA’s
“carefully crafted regulatory and adjudication scheme,” upsetting uniformity
and consistency in the application of NAICS codes. Def.’s Resp. And Cross-
Mot. For J. on the AR 29. The government also attaches an affidavit of the
CO, in which she states that past delay may cause the agency to have to
resurvey the site because of the possibility of erosion of the lakeshore. The
general public may be harmed by any delay because flooding in the interim
could cause major damage absent the embankments to be constructed by the
project. The agency is also concerned that delay may jeopardize funding for
the project.

We are not persuaded that these are serious concerns. We note at the
outset that the protest was filed on July 24, 2014. We immediately convened
a telephone conference in which the parties presented a schedule for bringing
the matter to conclusion in an expeditious manner. At no point did the
defendant raise the question of possible prejudice to the agency from delay
inherent in even an expedited briefing consideration. It is too late to do so
now. We adopted the parties’ proposed schedule and, after reviewing the
parties’ arguments, now agree with plaintiff that there was prejudicial error in

10
We note also that bid preparation costs are not available to plaintiff as it filed
a pre-award protest in lieu of bidding on the contract. This does not run afoul
of the Supreme Court’s warning in Ebay because we do not presume that this
fact entitles plaintiff to injunctive relief, rather it supports such a finding.

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the procurement. The absence of injunctive relief would thus punish plaintiff
for standing on its rights. Plaintiff was faced with a choice after the agency
resolicited the procurement. It could have submitted a bid and waived its right
to compete against similarly-sized small business dredging concerns, or it
could, as it did, file a pre-award protest and forego bidding. Absent an
injunction, plaintiff will not be able to compete, which will effectively punish
it for taking the risk of challenging the agency’s error. Moreover, we notified
the agency of our decision during oral argument, presumably giving it time to
take corrective action before the end of the fiscal year. The balance of the
harms thus weighs in plaintiff’s favor.

C. The Public Interest Favors Injunctive Relief

The public interest always favors the correct application of law. More
particularly, in the context of procurement statutes, the public interest always
favors open and fair competition, and to that end, agency compliance with
applicable regulations. Lab. Corp. of Am. Holdings v. United States, 116 Fed.
Cl. 643,654 (2014). That overarching interest obviously militates in favor of
an injunction here. There is no concern about national security, and the poorly
supported concerns discussed above about delay, most of which are
speculative, do not outweigh the public interest in enforcing the procurement
regulations implicated here.

CONCLUSION

In sum, plaintiff has satisfied the requirements for the limited injunctive
relief we ordered on September 23, 2014. The agency is prohibited from
awarding the contract or taking any further actions regarding the current
solicitation until it has reconsidered whether the dredging exception to NAICS
code 237990 ought to apply. It may only continue with current solicitation if
it finds that the dredging exception does not apply. In making its new
determination, the agency must give primary consideration to the relative value
of the work items. If item 7 is the most valuable, it must be considered of
primary importance, and absent other compelling considerations, the dredging
exception will apply. If that is the case, the agency must resolicit or otherwise
amend the contract to allow plaintiff an opportunity to compete. Accordingly,
the clerk is ordered to enter judgment for plaintiff. No costs.

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 s/Eric G. Bruggink
ERIC G. BRUGGINK
Judge

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