CR/ZWS, LLC v. USA

Filing 35

REPORTED OPINION. Signed by Judge Elaine D. Kaplan. (bh) Service on parties made.

In the United States Court of Federal Claims
BID PROTEST
No. 18-271C
(Filed Under Seal: May 16, 2018 | Reissued: June 4, 2018)*
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Plaintiff,
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v.
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THE UNITED STATES OF AMERICA,
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Defendant,
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and
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VMX INTERNATIONAL, LLC,
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Defendant-Intervenor. )
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CR/ZWS LLC,

Keywords: Bid Protest; Small Business
Administration; 8(a) Business
Development Program; Joint Venture
Agreements.

Megan C. Connor, PilieroMazza PLLC, Washington, D.C., for Plaintiff. Kathryn V. Flood,
Patrick T. Rothwell, and Kathryn M. Kelley, PilieroMazza PLLC, Washington, D.C., Of Counsel.
Kristin B. McGrory, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, Washington, D.C., for Defendant, with whom were L. Misha Preheim,
Assistant Director, Robert E. Kirschman, Jr., Director, and Chad A. Readler, Acting Assistant
Attorney General.
Nicholas T. Solosky, Fox Rothschild LLP, Washington, D.C., for Defendant-Intervenor.

*

In its initial filing of this opinion and order, the Court gave the parties the opportunity to
request redactions. The government did not propose any, but CR/ZWS LLC requested numerous
redactions throughout the opinion. The Court concludes, however, that almost all of the portions
of the opinion that CR/ZWS seeks to redact are not competition-sensitive or otherwise
protectable, and that their redaction would make portions of the Court’s opinion difficult to
understand. Therefore, with the exception of one third-party individual’s name, the Court rejects
CR/ZWS’s requests and reissues the opinion.

OPINION AND ORDER
KAPLAN, Judge.
This case involves a protest of the United States Army’s award of a contract for refuse
and recycling services. The procurement was open only to small businesses participating in the
Small Business Administration’s (SBA) 8(a) Business Development Program. Plaintiff CR/ZWS
LLC is a joint venture composed of Charitar Realty (Charitar), a program participant, and Zero
Waste Solutions, Inc. (ZWS), the incumbent contractor and a graduate from the 8(a) program.
Joint ventures that include an 8(a) participant, like CR/ZWS, must secure SBA approval
of the arrangement between the joint venturers to be eligible for 8(a) procurements. Here,
although CR/ZWS was declared the apparent awardee in the Army’s procurement, the SBA
ultimately refused to approve an amendment to the joint venture agreement that Charitar
submitted in connection with the procurement. In particular, the SBA determined that the joint
venture agreement, as amended, was not fair and equitable, and that Charitar brought little to the
relationship other than its 8(a) status. As a result, the SBA concluded that the joint venture
arrangement could not be approved under 13 C.F.R. § 124.513(a)(2). The Army therefore
awarded the contract to Defendant-Intervenor VMX International, LLC (VMX), the next lowest
bidder. CR/ZWS, in turn, filed this bid protest, challenging the SBA’s adverse determination
with respect to its proposed amendment, as well as the Army’s award to VMX.
Currently before the Court are CR/ZWS’s and the government’s cross-motions for
judgment on the administrative record. For the reasons set forth below, CR/ZWS’s motion for
judgment on the administrative record is DENIED and the government’s cross-motion for
judgment on the administrative record is GRANTED.
BACKGROUND
I.

The Solicitation

On July 11, 2017, the United States Army’s Mission and Installation Contracting
Command at Ft. Riley, Kansas issued an invitation for bids for a fixed price requirements
contract to provide refuse and recycling services at Ft. Riley. Admin. R. (AR) Tab 30 at 167–71,
205. Specifically, the Army was seeking a contractor to “provide all personnel, equipment, tools,
materials, vehicles, supervision, and other items and services necessary to perform refuse and
recycling services.” Id. at 170. The winning contractor would also operate the construction and
demolition landfill at the fort. Id. at 171; id. Tab 14 at 103.

2

The acquisition was designed as a 100% set-aside for participants in the SBA’s 8(a)
Business Development Program,1 with a size standard of $38,500,000.2 Id. Tab 30 at 167.
Interested parties were required to submit sealed bids to the Army prior to August 10, 2017. Id.
at 207. The Army would open the sealed bids on August 10, and ultimately award the contract to
the “lowest overall priced responsible bidder.” Id.; see also id. at 210 (“The Contracting Officer
shall make a contract award . . . to the responsible bidder whose bid . . . will be most
advantageous to the Government, considering only price and the price-related factors included in
the invitation.”). The award would not be made, however, until the Army obtained “all required
approvals” and the award was in conformance with FAR 14.103-2. Id. at 210.
The solicitation stated that in evaluating price and price-related factors, the contracting
officer would determine whether the “prices offered [we]re fair and reasonable before awarding
the contract.” Id. at 211. The contracting officer was also required to consider whether bids were
materially unbalanced in accordance with FAR 15.404-1, and could apply the price analysis
techniques contained in that provision. Id. Finally, in accordance with the fact that the contract
was set aside for 8(a)-eligible businesses, the solicitation provided that the successful bidder
must be a participant in the SBA’s 8(a) business development program. See id. at 197.
II.

The Joint Venture
A.

The Original Joint Venture Agreement

As noted, CR/ZWS LLC is a joint venture between Charitar and ZWS. Id. Tab 82 at 676.
Charitar is a real estate, janitorial, and property maintenance firm certified by the SBA as an 8(a)
business development participant. Id. at 678; see also id. Tab 100 at 804. ZWS is a “graduate” of
the SBA’s 8(a) business development program and is the incumbent contractor for refuse and
recycling services at Ft. Riley. Id. Tab 83 at 680; id. Tab 100 at 804.
A joint venture that includes an 8(a) participant, like CR/ZWS, is eligible to pursue an
8(a) contract if the SBA approves its joint venture agreement for the performance of that
contract.3 13 C.F.R. § 124.513(a)(1). On July 21, 2016, Charitar accordingly submitted its joint

1

Section 8(a) of the Small Business Act authorizes the small business development program. See
13 C.F.R. § 124.1 (2017); see also 15 U.S.C. § 637(a) (Supp. IV 2016). “The purpose of the 8(a)
[business development] program is to assist eligible small disadvantaged business concerns [in]
compet[ing] in the American economy through business development.” 13 C.F.R. § 124.1.
Qualifying small business concerns are admitted to the program as participants for a term of up
to nine years. Id. § 124.2. Upon successful completion, participants “graduate” from the 8(a)
program. See id. § 124.302.
2

“SBA’s size standards define whether a business entity is small and, thus, eligible for
Government programs and preferences reserved for ‘small business’ concerns.” 13 C.F.R.
§ 121.101(a).
3

Where a joint venture involving an 8(a) participant seeks to perform additional 8(a) contracts
after the SBA has already approved its joint venture agreement for a specific contract, it must
3

venture agreement with ZWS to the SBA for approval in order to bid on a solicitation issued by
the Department of Homeland Security. See AR Tab 82 at 676; see also id. Tab 82.1 at 679.1–
679.17. The SBA approved the CR/ZWS joint venture agreement on September 14, 2016. Id.
Tab 82.2 at 679.18; see also id. Tab 100 at 804. Since that time, the SBA has also approved four
amendments to the agreement that CR/ZWS submitted “for the purpose of bidding on successive
8(a) BD contracts.” Id. Tab 100 at 804.
B.

Proposed Amendment 5 to the Joint Venture Agreement

On August 10, 2017, at approximately the same time that CR/ZWS submitted its bid for
the procurement at issue in this case, it submitted Amendment 5 to its joint venture agreement to
the SBA for approval. See id. Tab 87 at 703–08; see also id. Tab 90 at 721. Consistent with 13
C.F.R. § 124.513, the amendment specifically addressed the provision of services and the
division of responsibilities in the event that the Army awarded the Ft. Riley contract to CR/ZWS.
Id. Tab 87 at 703–08.
Amendment 5 contained a description of the equipment, facilities and other resources that
would be furnished by each venturer, consistent with 13 C.F.R. § 124.513(c)(6). Specifically, it
provided that Charitar would supply the joint venture with “office equipment[] such as desktops,
laptops, printers, uniforms, labor, supplies and cell phones” at a total estimated value of $50,000.
Id. at 703–04. It would also provide “local office space, supplies, uniforms, and [personal
protective equipment].” Id. at 704. ZWS, on the other hand, would provide “service equipment[]
and vehicles” with a total estimated value of $650,000. Id.
Additionally, pursuant to 13 C.F.R. § 124.513(c)(2), the proposed amendment specified
that [***], who was then an employee of Shell Soft, Inc., would become an employee of Charitar
and serve as the project manager for the potential Ft. Riley contract. Id.; see also 13 C.F.R.
§ 124.513(c)(2) (requiring that the joint venture agreement “[d]esignat[e] . . . an employee of
[the] 8(a) Participant as the project manager responsible for performance of the contract”). Under
§ 124.513(c)(2), “[t]he individual identified as the project manager of the joint venture need not
be an employee of the 8(a) Participant at the time the joint venture submits an offer, but, if he or
she is not, there must be a signed letter of intent that the individual commits to be employed by
the 8(a) Participant if the joint venture is the successful offeror.” Charitar did not, however,
include any letter of intent to employ [***] with its submission to the SBA, see AR Tab 87; see
also id. Tab 90; but it has attached to its complaint a copy of such a letter (dated July 12, 2017),
Compl. Ex. D, ECF No. 1.
The amendment also specified that Charitar would supply four other full-time-equivalent
employees in addition to the project manager. AR Tab 87 at 708. These employees would serve
as quality control manager, quality control inspector, scale operator, and landfill operator, and
collectively with the project manager would perform 9,360 annual hours under the contract out

submit for the SBA’s approval addenda to the joint venture agreement that address those
additional contracts. 13 C.F.R. § 124.513(e)(2).

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of a total of 13,520 annual hours. AR Tab 87 at 708. The remaining annual hours would be
performed by two full-time equivalents, heavy truck drivers, employed by ZWS. Id.
With respect to staffing generally, the amendment provided that Charitar and ZWS would
each hire new employees for performance of the contract, and would do so “in accordance with
the requirement under Executive Order 13495 to provide a right of first refusal to the incumbent
contract personnel.”4 Id. at 704. Further, in order to comply with SBA regulations, Charitar and
ZWS agreed that Charitar “must perform at least forty percent (40%) of the work performed by
the Joint Venture and its work must be more than administrative or ministerial functions so [that
it] gains substantive experience.” Id. at 705.
Finally, the amendment specified that Charitar would “provide overall executive
oversight and [would] have overall responsibility for managing the . . . Contract.” Id. It would
also “perform major contract functions including workforce management, recycling services,
contract administration, union negotiations[,] and monthly contract report[s].” Id. ZWS would
“perform refuse collection and provide service equipment[].” Id.
III.

The SBA Initially Verifies Charitar’s Eligibility for the Award

The Army received three sealed bids in response to its invitation, including one from
CR/ZWS and one from VMX. Id. Tab 37 at 261. It opened the sealed bids on August 10, 2017.
See id. At that time, the Army noted that CR/ZWS was the apparent low bidder. Id.; see also id.
Tab 38 at 262. VMX was second. Id. Tab 38 at 262.
Following the opening of the sealed bids, the Army’s contracting officer emailed the
SBA’s Fresno District Office on August 11, 2017, to verify the “eligibility of a joint venture
between Zero Waste Solutions and Charitar Realty . . . for the refuse contract for Fort Riley,
KS.” Id. Tab 42 at 396. That same day, the SBA’s Fresno Office responded with a confirmation
of the joint venture’s eligibility for the contract award. Id. at 395; id. Tab 43 at 397.5
IV.

VMX’s Protests

Notwithstanding the SBA’s eligibility determination, the contracting officer did not move
forward immediately with a price analysis, determination of responsibility, or award of the
4

Executive Order 13,495 requires a subsequent contractor who receives a follow-on contract for
the same or similar services in the same location to provide a right of first refusal for
employment to the non-managerial and non-supervisory employees of the previous contractor.
Exec. Order No. 13,495, 74 Fed. Reg. 6,103 (Jan. 30, 2009).
5

The notification was provided in what appears to be a standardized form that was executed and
signed by an SBA Economic Development Specialist in the Fresno District Office. AR Tab 43 at
397. That specialist checked the box entitled “MEETS ELIGIBILITY,” which stated that “[t]he
firm named above [i.e., CR/ZWS] meets the 8(a) Program Eligibility requirements, [North
American Industry Classification System (NAICS)] code size standard requirements, and is
eligible for award.” Id. It is unclear from the document to what extent the SBA considered
Amendment 5 (submitted only the evening before) in making its eligibility determination.

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contract to CR/ZWS. See id. Tab 64 at 569. Instead, the remaining steps were put on hold
because of protests filed by unsuccessful bidder VMX. One was a size protest filed with the
Army and referred to the SBA, and the others were two bid protests, one filed with the Army and
another with the Government Accountability Office (GAO).
In its size protest, filed on August 17, 2017, VMX argued that CR/ZWS was not eligible
for award under the SBA’s 8(a) business development program because, among other reasons,
ZWS allegedly exceeded the procurement’s size standard. Id. Tab 45 at 401. The Army
forwarded VMX’s size protest to the SBA’s Area Office of Government Contracting on August
21, 2017. Id. Tab 56 at 462 n.2. On September 5, 2017, however, the SBA advised the Army that
it would not decide VMX’s size protest until after the Army decided VMX’s agency-level bid
protest. Id. at 463–64.
In the meantime, on August 18, 2017, VMX submitted a bid protest to the Army,
challenging the proposed award to CR/ZWS on the ground that CR/ZWS was “not responsible to
perform the work.” Id. Tab 55 at 444. On October 30, 2017, the Army denied this protest,
finding it premature because the Army had not yet conducted any price or responsibility analysis
and had not actually awarded the contract to CR/ZWS. Id. Tab 56 at 465.
Finally, on November 9, VMX filed a similar bid protest with GAO. Id. Tab 57 at 469. It
alleged that CR/ZWS was not responsible or eligible for award because it had violated certain
SBA regulations in submitting its bid; because its price was unbalanced, unreasonable, and
unrealistic; and because it lacked the necessary corporate infrastructure for performance. Id. Tab
58 at 472–73.
On December 6, 2017, GAO “dismiss[ed] the protest as premature because it merely
anticipate[d] improper action that ha[d] not yet taken place.” Id. Tab 65 at 570. GAO relied upon
the lack of any price or responsibility analysis and the ongoing SBA size protest to conclude that
“there [was] no basis for [it] to consider VMX’s protest.” Id. at 571.
V.

The SBA’s Consideration and Rejection of Amendment 5

In the meantime, while the protests were pending, Charitar communicated with the SBA
on several occasions in October and November 2017 regarding the status of its August 10, 2017
request for approval of Amendment 5. See id. Tab 91 at 731 (November 3, 2017 email from
Charitar to SBA referencing October phone call with SBA concerning status of approval
request); id. Tab 92 at 735 (email from Charitar to SBA seeking “update for the amendment
#5”). On December 28, 2017, the SBA followed up, sending Charitar an email requesting a link
to the relevant solicitation as well a copy of Charitar’s most recent business plan “[t]o coincide
with . . . JV Amendment[] 5.” Id. Tab 93 at 740. The record does not include any response to the
SBA’s request by Charitar.
On January 17, 2018, the Acting District Director of SBA’s Fresno District Office wrote
to Charitar’s president advising her that SBA was rejecting Amendment 5. Id. Tab 67 at 574–75.
She stated that after performing “a thorough review of the information [Charitar] submitted for
approval of Amendment #5,” the SBA had concluded that the amendment “raise[d] questions of

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control and technical requirements.” Id. at 574. The letter cited several grounds for the SBA’s
decision.
First, the SBA observed that under the amendment, ZWS would “provide all the
equipment needed to deliver the contract valued at $650,000,” while Charitar would “provide all
the equipment to administer the contract valued at $50,000.” Id. According to the SBA, “this
division of provided equipment” suggested that the 8(a) participant, Charitar, was not “investing
equitable portions [in] the JV.” Id.
Second, the SBA asserted that under the proposed amendment, the project manager on
the contract would be an employee of ZWS. Id. This was problematic, according to the SBA,
because the project manager had been given the authority to negotiate the contract. Id. Authority
to negotiate the contract, it observed, “should be to the 8a venturer, with assistance from the
partner venturer.” Id.
Further, the SBA observed, although under the staffing plan Charitar would hire four fulltime-equivalent employees, those roles were then being performed under ZWS’s incumbent
contract by ZWS employees, who would have a “first right of refusal” with respect to Charitar’s
hiring of any other employees for their positions. Id. “[T]his division of labor,” the SBA opined,
would not allow Charitar to gain experience in performing certain aspects of the contract. See id.
The SBA also questioned CR/ZWS’s assertion that Charitar would perform 40% of the
work. It noted that it appeared that Charitar had been “relegated to managerial duties.” Id. “As it
reads,” according to the SBA, “the 8a venturer must gain substantive experience, but [the
amendment] does not delineate what or how this will be done.” Id. Further, according to the
SBA, the amendment indicated that Charitar would be performing “executive oversight” of the
contract, which the SBA believed “translates to administrative [work], without any actual
performance experience in the delivery of services on the base.” Id.
Finally, the SBA noted that “Charitar has no prime contracting experience in . . . solid
waste collection services,” while “ZWS – the incumbent – has all the experience, equipment and
personnel needed to perform the government contract at issue.” Id. at 575. Charitar’s lack of
experience in performing these services and its lack of the necessary vehicles, the SBA reasoned,
would lead to it being “wholly dependent on ZWS for performance,” raising “issues of negative
control.” Id. Citing 13 C.F.R. § 124.513(a)(2), the SBA concluded that because “Charitar brings
very little to the joint venture relationship in terms of resources and experience other than its 8(a)
status, SBA should not approve the joint venture agreement.” Id.
In light of its rejection of Amendment 5, the SBA denied VMX’s pending size protest on
January 23, 2018. Id. Tab 53 at 440. It concluded that because CR/ZWS’s proposed amendment
“was being declined . . . CR/ZWS cannot be considered an eligible 8(a) concern for this instant
procurement.” Id. at 441. Because this “eliminated [CR/ZWS] from being considered for award,”
it was “no longer the prospective awardee” and VMX’s protest was therefore “dismissed as
premature.” Id.

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VI.

The SBA Denies CR/ZWS’s Request for Reconsideration

On January 23, 2018, CR/ZWS requested that the SBA reconsider its decision rejecting
Amendment 5. Id. Tab 96 at 744–46. On February 14, 2018, the SBA denied the request. Id. Tab
100 at 804–08.
In denying reconsideration, the SBA observed that under its regulations, “an 8(a) joint
venture agreement is permissible only where an 8(a) Participant lacks the necessary capacity to
perform the contract on its own, and the agreement will be fair and equitable and will be of
substantial benefit to the 8(a) concern.” Id. at 804–05 (citing 13 C.F.R. § 124.513(a)(2)). It noted
that in its original decision, it had concluded that the agreement as modified by Amendment 5
“would not substantially benefit Charitar because the firm lacks the requisite resources and
expertise to meaningfully contribute to contract performance, and would bring very little to the
relationship other than its 8(a) status.” Id. at 805. “Specifically,” the SBA observed, “the decline
letter noted concerns with respect to equipment disparity, project management and staffing,
contract negotiation, and performance, and prior experience.” Id.
The SBA then addressed and rejected each of CR/ZWS’s proffered grounds for
reconsideration. First, CR/ZWS had argued that in rejecting Amendment 5, the SBA had
improperly relied upon the disparity between Charitar’s and ZWS’s proposed contributions of
equipment needed to perform the contract. Id. Tab 96 at 744. CR/ZWS contended that there is no
requirement in SBA’s regulations that each venturer “invest an ‘equitable’ portion of equipment
or resources.” Id. Further, it argued that the SBA had “overlook[ed]” Charitar’s other
contributions to the joint venture “including office space, supplies, and uniforms, which make
the agreement fair and equitable to both parties.” Id.
The SBA dismissed CR/ZWS’s argument that it had imposed an arbitrary requirement
that the venturers’ equipment contributions be equitable. Id. Tab 100 at 805. Rather, it noted,
“[t]he decline letter clearly demonstrates that the [Fresno District Office] weighed the relative
contributions of Charitar and ZWS and determined that Charitar would bring very little in terms
of contract resources.” Id.
CR/ZWS also requested reconsideration on the ground that—contrary to the SBA’s
belief—the proposed project manager was not an employee of ZWS; rather, he was an employee
of a third party, Shell Soft. Id. Tab 96 at 745. Further, CR/ZWS claimed, the denial letter had
disregarded the staffing plan that was included in Amendment 5, which specified that Charitar
would employ the project manager, quality control manager, quality control inspector, scale
operator, and landfill operator, while ZWS would employ only two full-time equivalents for
purposes of contract performance, heavy truck drivers. Id.
The SBA conceded that it was mistaken when it stated that the proposed project manager
was an employee of ZWS. Id. Tab 100 at 805. It nonetheless concluded that corrective action
was not warranted because Charitar had still failed to comply with 13 C.F.R. § 124.513(c)(2)
regarding the proposed project manager. See id. As noted, where an individual slated to be
project manager is not an employee of the 8(a) concern at the time of submitting a bid,
§ 124.513(c)(2) states that “there must be a signed letter of intent that the individual commits to
be employed by the 8(a) Participant if the joint venture is the successful offeror.” But “[c]ontrary

8

to these regulatory requirements,” the SBA stated, “it appears that CR/ZWS designated as
project manager an individual not employed by Charitar without executing the . . . letter of
intent.” AR Tab 100 at 806.
Finally, CR/ZWS objected to the SBA’s finding that “the 8a venturer will be doing the
‘executive oversight’ of the contract [which] translates to administrative, without any actual
performance experience in the delivery of services on the base.” Id. Tab 96 at 745 (quoting
denial letter) (alteration in original). To the contrary, CR/ZWS argued, “Charitar will be gaining
actual, hands-on experience through the five FTEs, which represent nearly 70% of the annual
labor hours on this services contract.” Id. (emphasis in original). It asserted that “[t]his work is
more than administrative and offers Charitar the ability to gain experience in solid waste
collection services—which is exactly the purpose of joint ventures under 13 C.F.R. § 124.513.”
Id.
The SBA rejected these contentions as well. Id. Tab 100 at 806. It asserted that “none of
the FTEs under the contract would have come from Charitar,” noting that, in accordance with the
right of first refusal established under Executive Order 13,495, “CR/ZWS would primarily staff
its share of FTEs . . . with personnel hired from ZWS.” Id. As a result, the SBA believed “that
Charitar would rely too heavily on ZWS’s personnel, and . . . not obtain substantive staffing
experience under the contract.” Id. The SBA also concluded that under the amendment, Charitar
“would have primarily provided administrative and ancillary services under the contract, while
ZWS would have performed four of the five essential functions for the Army.” Id. at 807.
Specifically, “ZWS—or former employees of ZWS—would have been exclusively responsible
for refuse collection, refuse delivery, recycling delivery and landfill operation.” Id. Charitar, on
the other hand, “would have only performed recycling collection and contract administration
services, which amount to a small portion of contract deliverables under the [performance work
statement].” Id. “It was thus reasonable,” the SBA stated, “for the [Fresno District Office] to
conclude that Charitar would have gained minimal substantive experience from th[e] contract.”
Id.
Finally, the SBA cited a recent size determination with respect to a contract for custodial
services involving Charitar and ZWS. Id. at 808 (citing Charitar Realty, SBA No. SIZ-5806 (Jan.
25, 2017)). In that matter, the SBA had concluded “that Charitar ran afoul of the ostensible
subcontractor rule,” 13 C.F.R. § 121.103(h)(4), because: “1) ZWS was the incumbent on the
predecessor contract for similar custodial services, and was ineligible to submit its own proposal;
2) Charitar would staff its portion of the contract almost entirely with personnel hired from
ZWS; 3) Charitar’s proposed project manager was an employee of ZWS; and 4) Charitar lacked
the relevant experience to win and perform a contract for custodial services.” Id. The SBA
concluded that the similarity in circumstances “establishes a pattern of Charitar’s undue reliance
on ZWS,” which “informs the inquiry of whether Charitar will substantially benefit from any
subsequent contracts awarded to CR/ZWS.” Id.
VII.

Award to VMX

On January 19, 2018, the Army informed the SBA that—in light of the SBA’s
disapproval of the proposed amendment—the Army would reject CR/ZWS’s bid. See id. Tab 69
at 577. That same day, the SBA found VMX eligible for 8(a) set-asides. Id. Tab 70 at 578.

9

Shortly afterward, on February 6, 2018, the Army awarded the Ft. Riley contract to
VMX. Id. Tab 75 at 630–35. Also on February 6, the Army formally informed CR/ZWS that it
had rejected its bid because of the SBA’s “denial of [its] joint venture agreement.” Id. Tab 81 at
675.6
VIII. This Action
On February 21, 2018, CR/ZWS filed its complaint here. Compl., ECF No. 1. In it,
CR/ZWS alleges that the SBA “improperly denied an amendment to CR/ZWS’s joint venture
agreement in connection with an 8(a) Business Development Program . . . set-aside solicitation
issued by the U.S. Department of the Army.” Id. ¶ 1. “As a result,” CR/ZWS asserts, “the Army
improperly deemed CR/ZWS ineligible for award.” Id.
In its three causes of action, CR/ZWS alleges that: 1) the SBA’s denial was arbitrary,
capricious, and an abuse of discretion; 2) the SBA’s denial was contrary to law and regulation;
and 3) the Army’s use of the SBA’s denial letter to reject its bid was arbitrary, capricious, an
abuse of discretion, and in violation of law and regulation. Id. ¶¶ 20–39. CR/ZWS seeks
declaratory relief and an injunction stopping VMX’s performance of the contract, requiring the
SBA to either approve or reevaluate CR/ZWS’s proposed amendment, and directing the Army to
award the Ft. Riley contract to CR/ZWS. Id. at 10–11.
VMX moved to intervene on February 22, 2018, and the Court granted its motion. ECF
Nos. 9–10. On March 23, 2018, CR/ZWS filed a motion for judgment on the administrative
record. ECF No. 22. The government then filed a cross-motion for judgment on the
administrative record on April 6, 2018. ECF No. 27. VMX did not file any motions or briefs. The
Court held oral argument on May 2, 2018. ECF No. 29.
DISCUSSION
I.

Subject Matter Jurisdiction

The Court of Federal Claims has jurisdiction over bid protests in accordance with the
Tucker Act, 28 U.S.C. § 1491, as amended by the Administrative Dispute Resolution Act of
1996 § 12, 28 U.S.C. § 1491(b). Specifically, the Court has the authority “to render judgment on
an action by an interested party objecting to a solicitation by a Federal agency for bids or
proposals for a proposed contract or to a proposed award or the award of a contract or any
alleged violation of statute or regulation in connection with a procurement or a proposed
procurement.” 28 U.S.C. § 1491(b)(1); see also Sys. Application & Techs., Inc. v. United States,
691 F.3d 1374, 1380–81 (Fed. Cir. 2012) (observing that § 1491(b)(1) “grants jurisdiction over
objections to a solicitation, objections to a proposed award, objections to an award, and
objections related to a statutory or regulatory violation so long as these objections are in
connection with a procurement or proposed procurement”).
6

VMX’s performance was set to begin April 1, 2018, see AR Tab 77 at 643, but the Army
agreed to a voluntary stay of performance for the duration of this protest, Status Conference at
11:01:51am (Feb. 23, 2018).

10

To possess standing to bring a bid protest, a plaintiff must be an “interested party”—i.e.,
an actual or prospective bidder (or offeror) who possesses a direct economic interest in the
procurement. Sys. Application & Techs., Inc., 691 F.3d at 1382 (citing Weeks Marine, Inc. v.
United States, 575 F.3d 1352, 1359 (Fed. Cir. 2009)); see also Orion Tech., Inc. v. United States,
704 F.3d 1344, 1348 (Fed. Cir. 2013). An offeror has a direct economic interest if it suffered a
competitive injury or prejudice as a result of an alleged error in the procurement process. Myers
Investigative & Sec. Servs., Inc. v. United States, 275 F.3d 1366, 1370 (Fed. Cir. 2002) (holding
that “prejudice (or injury) is a necessary element of standing”); see also Weeks Marine, Inc., 575
F.3d at 1359.
In post-award protests, like this one, a plaintiff may demonstrate competitive injury or
prejudice by showing that it would have had a “substantial chance” of winning the award “but
for the alleged error in the procurement process.” Weeks Marine, Inc., 575 F.3d at 1359–62
(quoting Info. Tech. & Applications Corp. v. United States, 316 F.3d 1312, 1319 (Fed. Cir.
2003)). In making the standing determination, the Court assumes well-pled allegations of error in
the complaint to be true. Square One Armoring Serv., Inc. v. United States, 123 Fed. Cl. 309,
323 (2015) (citing Digitalis Educ. Sols., Inc. v. United States, 97 Fed. Cl. 89, 94 (2011), aff’d,
664 F.3d 1380 (Fed. Cir. 2012)); see also Salmon Spawning & Recovery All. v. U.S. Customs
& Border Prot., 550 F.3d 1121, 1131–32 & n.9 (Fed. Cir. 2008) (citing Lujan v. Defs. of
Wildlife, 504 U.S. 555, 561 (1992)); Linc Gov’t Servs., LLC v. United States, 96 Fed. Cl. 672,
694–95 (2010) (noting that the showing of prejudice as an element of standing “turns entirely on
the impact that the alleged procurement errors had on a plaintiff’s prospects for award, taking the
allegations as true,” and distinguishing “allegational prejudice” required to establish standing
from the “prejudicial error” required to prevail on the merits).
Here, CR/ZWS is objecting to the Army’s award of the contract to VMX, as well as to
alleged regulatory violations by the SBA. SBA determinations regarding eligibility for set-aside
contracts are decisions made in connection with a procurement. See Dorado Servs., Inc. v.
United States, 128 Fed. Cl. 375, 383 (2016); see also Tinton Falls Lodging Realty, LLC v.
United States, 800 F.3d 1353, 1356–60 (Fed. Cir. 2015). Further, CR/ZWS is an interested party
because it was an actual bidder and it possesses a direct economic interest in that, as the lowest
bidder in a lowest-price procurement, absent the SBA’s allegedly erroneous eligibility
determination, CR/ZWS would have had a substantial chance of being awarded the contract.
Accordingly, the Court has jurisdiction over CR/ZWS’s challenge to the SBA’s decision.7
II.

Bid Protest Standards

Pursuant to Rule 52.1 of the Rules of the Court of Federal Claims (RCFC), the Court
reviews an agency’s procurement decision based on the administrative record. Bannum, Inc. v.
United States, 404 F.3d 1346, 1353–54 (Fed. Cir. 2005). The court makes “factual findings under
7

The government has argued that the Court lacks subject matter jurisdiction over one particular
claim that CR/ZWS is pressing in its motion for judgment on the administrative record—that the
SBA failed to comply with the procedural requirements applicable to informal adjudications
under 5 U.S.C. § 555. For the reasons set forth in greater detail below, the Court rejects that
argument.

11

RCFC [52.1] from the record evidence as if it were conducting a trial on the record.” Id. at 1357.
Thus, “resolution of a motion respecting the administrative record is akin to an expedited trial on
the paper record, and the Court must make fact findings where necessary.” Baird v. United
States, 77 Fed. Cl. 114, 116 (2007), aff’d, 285 F. App’x 746 (Fed. Cir. 2008). The Court’s
inquiry is “whether, given all the disputed and undisputed facts, a party has met its burden of
proof based on the evidence in the record.” A&D Fire Prot., Inc. v. United States, 72 Fed. Cl.
126, 131 (2006). Unlike a summary judgment proceeding, genuine issues of material fact will
not foreclose judgment on the administrative record. Bannum, Inc., 404 F.3d at 1356.
In a bid protest, the Court weighs challenges to procurement decisions under the same
standards used to evaluate agency actions under the Administrative Procedure Act, 5 U.S.C.
§ 706. See 28 U.S.C. § 1491(b)(4) (stating that “[i]n any action under this subsection, the courts
shall review the agency’s decision pursuant to the standards set forth in section 706 of title 5”).
Thus, to successfully challenge an agency’s procurement decision, a plaintiff must show that the
agency’s decision was “arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A); see also Bannum, Inc., 404 F.3d at 1351.
This “highly deferential” standard of review “requires a reviewing court to sustain an
agency action evincing rational reasoning and consideration of relevant factors.” Advanced Data
Concepts, Inc. v. United States, 216 F.3d 1054, 1058 (Fed. Cir. 2000) (citing Bowman Transp.,
Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974)). Thus, the Court cannot substitute
its judgment for that of the agency. See Honeywell, Inc. v. United States, 870 F.2d 644, 648
(Fed. Cir. 1989) (holding that as long as there is “a reasonable basis for the agency’s action, the
court should stay its hand even though it might, as an original proposition, have reached a
different conclusion” (quoting M. Steinthal & Co. v. Seamans, 455 F.2d 1289, 1301 (D.C. Cir.
1971))). Instead, the Court’s function is limited to “determin[ing] whether ‘the contracting
agency provided a coherent and reasonable explanation of its exercise of discretion.’” Impresa
Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1332–33 (Fed. Cir. 2001)
(quoting Latecoere Int’l, Inc. v. U.S. Dep’t of Navy, 19 F.3d 1342, 1356 (11th Cir. 1994)); see
also Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983) (court should review agency action to determine if the agency has “examine[d] the
relevant data and articulate[d] a satisfactory explanation for its action”). A disappointed offeror
“bears a heavy burden” in attempting to show that the agency’s decision lacked a rational basis.
Impresa Construzioni, 238 F.3d at 1338.
III.

The Cross-Motions for Judgment on the Administrative Record

In this case, the SBA determined that the amendment to the joint venture agreement
between Charitar and ZWS was not “fair and equitable and . . . [not] of substantial benefit to the
8(a) concern”—i.e., Charitar. See 13 C.F.R. § 124.513(a)(2). It concluded that Charitar
“[brought] very little to the joint venture relationship in terms of resources and expertise other
than its 8(a) status.” See AR Tab 95 at 743. As a result, the Army awarded the contract to the
next lowest bidder, VMX.
CR/ZWS contends that, because the SBA originally certified CR/ZWS’s eligibility to the
Army in August 2017, it violated its own regulations by finding CR/ZWS ineligible for a
contract award in January 2018. It also argues that the SBA violated CR/ZWS’s “due process”

12

rights by not providing it with notice of the defects in Amendment 5 before it made its January
2018 determination of ineligibility.8 Finally, it contends that the grounds for the SBA’s decision
are not adequately documented and that its determination that the joint venture arrangement did
not satisfy regulatory criteria lacked a rational basis.
For the reasons set forth below, the Court finds each of these arguments unpersuasive.
A.

Whether SBA Regulations Precluded the Agency from Revisiting its August
2017 Eligibility Determination

CR/ZWS first argues that the SBA violated one of its regulations—13 C.F.R.
§ 124.507(b)—when it rejected Amendment 5 in January 2018. Mem. in Supp. of Pl. CR/ZWS
LLC’s Mot. for J. on the Admin. R. (Pl.’s Mem.) at 9–12, ECF No. 23. According to CR/ZWS,
under that regulation, the SBA was bound by the positive eligibility determination that it
communicated to the Army on August 11, 2017, and lacked the authority to later reject
Amendment 5. This argument lacks merit.
The regulation at issue states, in pertinent part, that “[i]n either a negotiated or sealed bid
competitive 8(a) acquisition, the procuring activity will request that the SBA district office . . .
determine that firm’s eligibility for award.” 13 C.F.R. § 124.507(b). Upon receipt of the request,
the SBA is required to make its eligibility determination “[w]ithin 5 working days.” Id.
§ 124.507(b)(1). Further, “[w]here the apparent successful offeror is a joint venture and SBA has
not approved the joint venture prior to receiving notification of the apparent successful offeror,”
“[i]f SBA cannot approve the joint venture within 5 days” and “the procuring activity does not
grant additional time for review,” the regulation specifies that the SBA “will be unable to verify
the eligibility of the joint venture for award.” Id. § 124.507(b)(3).
According to CR/ZWS, 13 C.F.R. § 124.507(b) renders final and not subject to
reconsideration any 8(a) eligibility determination that the SBA makes within five days after a
contracting agency’s request. Pl.’s Mem. at 9–12. Thus, according to CR/ZWS, because the SBA
issued a positive eligibility determination within the five-day window, i.e., in August 2017, it
was precluded from issuing a non-eligibility determination months later in January 2018.
CR/ZWS’s reading of the regulation is unsupported by its text. Section 124.507(b) does
not purport to make final and irrevocable any eligibility determination that SBA makes within
the five-day window. Its apparent purpose is instead to promote efficiencies in the procurement
process by imposing a short turnaround time on the SBA to make its 8(a) eligibility
determinations, while giving agencies the authority to consent to a longer period for decision at
8

CR/ZWS appears to have formulated these regulatory and procedural arguments after its review
of the administrative record and they are not contained in its complaint. Nevertheless, the parties
have fully briefed these issues in their cross-motions for judgment on the administrative record
and the Court therefore treats the allegations as if raised in the pleadings. RCFC 15(b)(2); see
also Elmore v. Corcoran, 913 F.2d 170, 172 (4th Cir. 1990); Pac. Gas & Elec. Co. v. United
States, 70 Fed. Cl. 758, 763 n.6, 765 (2006); Tenn. Valley Auth. v. United States, 69 Fed. Cl.
515, 523–24 (2006).

13

their discretion. The regulation also provides that if the SBA does not meet the five-day deadline,
then—absent an agency’s agreement to extend the deadline—it will not be able to verify the joint
venture’s eligibility for award at all. 13 C.F.R. § 124.507(b)(3). The effect of subsection (b)(3) is
to give agencies the opportunity to move on to the next lowest bidder after five days if they have
not yet heard from the SBA. Or, if they wish, they may give the SBA additional time.
Nothing in the text of the regulation precludes the SBA from revisiting or changing a
prior, timely determination of eligibility, and doing so makes practical sense where, as here, a
contract award has not yet been made. Indeed, the interpretation promoted by CR/ZWS would
lead to the absurd result that the SBA could never correct a prior eligibility determination even if
it was clear that the determination was erroneous or contrary to law. That result would not only
undermine compliance with SBA requirements; it would also result in delays in the procurement
process as competitors would be required to file protests in order to secure relief from erroneous
SBA determinations.9
In short, SBA did not violate 13 C.F.R. § 124.507(b) when it made its January 2018
eligibility determination. Therefore, the government is entitled to judgment on the administrative
record as to this claim.
B.

CR/ZWS’s Claim Under 5 U.S.C. § 555

CR/ZWS next argues that even if the SBA was not precluded by its regulations from
revisiting its August 2017 eligibility determination, its “sua sponte reconsider[ation] . . . without
providing CR/ZWS notice of the alleged defects in Amendment 5 or an opportunity to respond”
violated CR/ZWS’s procedural rights under 5 U.S.C. § 555, the provision of the Administrative
Procedure Act (APA) that governs informal agency adjudication. Pl.’s Mem. at 12.10
As an initial matter, the Court is unpersuaded by the government’s argument that it lacks
jurisdiction over this claim. See Def.’s Cross-Mot. for J. on the Admin. R. & Opp’n to Pl.’s Mot.
for J. on the Admin. R. at 16–17, ECF No. 27. It is, of course, well settled that the Court of
Federal Claims lacks the authority to entertain claims predicated on the APA. See Crocker v.
United States, 125 F.3d 1475, 1476 (Fed. Cir. 1997) (per curiam); see also Lion Raisins, Inc. v.
United States, 416 F.3d 1356, 1370 n.11 (Fed. Cir. 2005); Martinez v. United States, 333 F.3d
1295, 1313 (Fed. Cir. 2003) (en banc); Century Expl. New Orleans, LLC v. United States, 110
9

The Court also notes that the SBA’s Office of Hearings and Appeals has similarly rejected an
equitable estoppel challenge to an SBA reversal of a joint venture eligibility determination like
the one that occurred here. Doyon Props., Inc., SBA No. SIZ-4838 (Feb. 12, 2007). Although not
binding on the Court of Federal Claims, decisions of the SBA’s Office of Hearings and Appeals
may be persuasive. See Rotech Healthcare Inc. v. United States, 71 Fed. Cl. 393, 414, 421–23,
appeal dismissed, No. 06-5121 (Fed. Cir. Nov. 28, 2006).
10

In their briefs, the parties have generally referred to CR/ZWS’s procedural rights claims as
“due process” claims. But as CR/ZWS acknowledges, its claims are based on § 555, not the Fifth
Amendment. CR/ZWS LLC’s Reply in Supp. of Its Mot. for J. on the Admin. R. & Opp’n to
Gov’t’s Cross-Mot. for J. on the Admin. R. at 15, ECF No. 28.

14

Fed. Cl. 148, 173 (2013), aff’d, 745 F.3d 1168, 1179–80 (Fed. Cir. 2014). But the Court’s
jurisdiction over CR/ZWS’s claim is predicated not on the APA itself, but on the Tucker Act,
which (as noted) grants the Court jurisdiction over “an action by an interested party objecting
to . . . any alleged violation of statute or regulation in connection with a procurement or a
proposed procurement.” 28 U.S.C. § 1491(b)(1). Further, there is no question that an agency
must “run [a] procurement” in conformance with the APA, which establishes the bedrock
regulatory scheme that governs all agency conduct. See Cleveland Assets, LLC v. United States,
883 F.3d 1378, 1381–82 (Fed. Cir. 2018) (observing that the Tucker Act grants jurisdiction over
“statutory and regulatory violations” that occur in “the procurement context,” but not over those
that are only “tangentially related to a government procurement”). And the parties agree that the
SBA’s denial constituted an informal adjudication for purposes of the APA. Thus, because
CR/ZWS alleges that the SBA violated § 555 in the course of evaluating its eligibility to
participate in the procurement, and because therefore this alleged violation occurred “in
connection with a procurement,” the Court has Tucker Act jurisdiction over its claim.
The Court concludes, however, that this claim clearly lacks merit because there is nothing
in § 555 that guaranteed CR/ZWS notice and an opportunity to respond before the SBA reversed
its initial determination regarding CR/ZWS’s eligibility for the award. As the Supreme Court has
explained, the requirements that agencies must follow when conducting an informal adjudication
under § 555 are “minimal.” Pension Ben. Guar. Corp. v. LTV Corp., 496 U.S. 633, 655 (1990).
Indeed, in Pension Benefit Guaranty, the Supreme Court expressly rejected the argument that in
an informal adjudication a “party is entitled . . . to know the issues on which decision will turn”
in advance and “be apprised of the factual material on which the agency [will] rel[y] for decision
so that he may rebut it” before the decision is made. Id. (quoting Bowman Transp., Inc., 419 U.S.
at 288 n.4). Those procedural rights must be provided only in the context of formal agency
adjudications under 5 U.S.C. §§ 554 and 556–57.
Section 555(b), by contrast, “is universally understood to establish” a less elaborate
right—i.e., “the right of an interested person to participate in an on-going agency proceeding.”
Block v. S.E.C., 50 F.3d 1078, 1085 (D.C. Cir. 1995); see also 5 U.S.C. § 555(b) (providing in
pertinent part that “[a] party is entitled to appear in person or by or with counsel or other duly
qualified representative in an agency proceeding” and that “[s]o far as the orderly conduct of
public business permits, an interested person may appear before an agency or its responsible
employees for the presentation, adjustment, or determination of an issue, request, or controversy
in a proceeding, whether interlocutory, summary, or otherwise, or in connection with an agency
function”). And even that limited right is subject to the “broad discretion” of agencies “to limit
the participation of interested individuals and organizations in agency proceedings.” Animal
Legal Def. Fund, Inc. v. Vilsack, 237 F. Supp. 3d 15, 22 (D.D.C. 2017).
Similarly, subsection (e) provides significantly fewer procedural rights than those
claimed here. It requires that “[p]rompt notice shall be given of the denial in whole or in part of a
written application, petition, or other request of an interested person made in connection with any
agency proceeding” and that “[e]xcept in affirming a prior denial or when the denial is selfexplanatory, the notice shall be accompanied by a brief statement of the grounds for denial.”
It cannot be disputed that the proceedings before the SBA in connection with this
procurement were in compliance with these bare procedural requirements; in fact, they went
15

beyond them. Thus, CR/ZWS exercised its rights under 5 U.S.C. § 555(b) to participate in
proceedings before the SBA when Charitar submitted Amendment 5 for the agency’s approval
on August 10, 2017. AR Tab 90 at 721. Further, CR/ZWS’s participation was meaningful
because it had notice of the standards that the SBA would apply in making its determination.
Moreover, CR/ZWS received a written explanation of the grounds for the SBA’s January 2018
decision, which facilitates the Court’s review of that decision. In fact, it even had the opportunity
to request that the agency reconsider the findings that CR/ZWS considered erroneous. In
response, it received a second, more detailed explanation of the basis for the SBA’s
determination, which further facilitates this Court’s review. See Olivares v. T.S.A., 819 F.3d
454, 463 (D.C. Cir.) (the requirement that an agency set forth its reasoning in writing “not only
ensures the agency’s careful consideration of [the request before it], but also gives parties the
opportunity to apprise the agency of any errors it may have made and, if the agency persists in its
decision, facilitates judicial review” (quoting Tourus Records, Inc. v. D.E.A., 259 F.3d 731, 737
(D.C. Cir. 2001))), cert. denied, 137 S. Ct. 282 (2016).
The Court rejects CR/ZWS’s argument that some further procedural protections were
warranted in light of the fact that the SBA advised the Army that CR/ZWS was eligible for the
contract award on August 11, 2017. CR/ZWS was never informed of that initial determination
and therefore took no actions in reliance on it (nor did it refrain from taking actions in reliance
on that determination). See AR Tab 42 at 395 (August 11, 2017 SBA email sent only to Army);
Pl.’s Mem. at 13 (stating that the SBA “did not notify CR/ZWS of the initial eligibility
determination in August 2017”). In fact, CR/ZWS continued to anticipate and inquire about a
decision on its proposed amendment well after August 2017. See AR Tab 91 at 731 (November
3, 2017 email from Charitar to the SBA inquiring as to the status of its review of Amendment 5);
id. Tab 92 at 735 (November 6, 2017 email seeking same). Moreover, the SBA notified CR/ZWS
in December 2017 that it had not yet made a determination regarding Amendment 5 and it gave
CR/ZWS the opportunity to submit additional information for the review. See id. Tab 93 at 740
(December 28, 2017 SBA email to Charitar asking for solicitation and business plan for
Amendment 5); id. Tab 94 at 741 (January 2, 2018 SBA email to Charitar seeking same). In
short, CR/ZWS received all the procedural rights to which it was entitled under 5 U.S.C. § 555.
C.

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

Finally, CR/ZWS challenges the substance of the SBA’s decision rejecting Amendment 5
as arbitrary, capricious, and contrary to law. First, it contends that the administrative record does
not contain a sufficient explanation of the basis for what CR/ZWS characterizes as an “aboutface” in the SBA’s position between its initial eligibility determination in August 2017 and its
subsequent non-eligibility decision in January 2018. Second, it claims that the SBA erred:
1) when it took into consideration the disparity in the relevant contributions of equipment and
resources of each joint venturer; 2) when it concluded that the venturers’ proposed project
manager was a ZWS employee; 3) when it relied upon the fact that all other personnel on the
contract would likely be former ZWS employees in light of the right of first refusal granted by
Executive Order 13,495; 4) when it found that Charitar would be performing executive oversight
of the contract only, without gaining experience in the delivery of services called for under the
contract; and 5) when it concluded that Charitar would bring little to the joint venture other than
its 8(a) status.

16

For the reasons set forth below, the Court concludes that the SBA acted well within its
considerable discretion and consistently with its regulations when it rejected Amendment 5 and
found that CR/ZWS did not establish its eligibility for the contract. The government is therefore
entitled to judgment on the administrative record as to this claim.
First, the Court rejects CR/ZWS’s argument that the record is inadequate because it does
not explain why the SBA performed what CR/ZWS characterizes as an “about-face” in its
position. What CR/ZWS identifies as a determination of its eligibility is reflected only in a box
checked off on a form, dated August 11, 2017. The form itself makes no reference to
Amendment 5 at all and, in fact, the SBA communicated CR/ZWS’s eligibility via this form only
a few working hours after CR/ZWS submitted Amendment 5 for its approval.
The Court concludes that the most reasonable reading of the record is that when the SBA
made its eligibility determination the day after CR/ZWS submitted Amendment 5 for its
approval, the SBA had not taken Amendment 5 into consideration. The record also strongly
suggests that the SBA did not turn its attention to Amendment 5 until December 2017, when it
requested additional information from CR/ZWS in connection with its review of that
amendment.
In any case, the Court finds unpersuasive CR/ZWS’s argument that the SBA failed to
sufficiently articulate the basis for its rejection of Amendment 5. The agency’s burden of
explanation is a modest one; as noted, it need only articulate a “rational connection between the
facts found and the choice made,” and the Court will “uphold a decision of less than ideal clarity
if the agency’s path may reasonably be discerned.” Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43
(quotations omitted).
In this case, the basis for the SBA’s determination regarding Amendment 5 is readily
discerned from the January 2018 decision letter and the February 14, 2018 letter denying
CR/ZWS’s request for reconsideration.11 Those letters reveal that in determining what Charitar
was bringing to the joint venture arrangement (other than its 8(a) status), the SBA found it
significant that virtually all of the equipment needed to perform the work (whose estimated value
was $650,000) was to be supplied by ZWS, while Charitar would be supplying only local office
space, office supplies, uniforms, and personal protective equipment, valued at $50,000. It also
found that, in light of the requirements of Executive Order 13,495, Charitar would not be
supplying any new non-managerial employees for the contract. Instead, the staff Charitar would
11

The Court rejects CR/ZWS’s argument that the SBA’s February 14, 2018 letter contains “posthoc rationalizations” that the Court should not consider. Pl.’s Mem. at 28. The February 14, 2018
letter was not an after-the-fact justification “advanced by an agency seeking to defend past
agency action against attack.” See Auer v. Robbins, 519 U.S. 452, 462 (1997). To the contrary,
the February 14, 2018 letter is a part of the administrative decision-making process that CR/ZWS
challenges here. It represents the agency’s contemporaneous documentation of its rationale for
denying CR/ZWS’s request for reconsideration, which CR/ZWS made prior to litigation. AR Tab
100 at 804 (“This is in response to your letter . . . requesting that the U.S. Small Business
Administration . . . reconsider its January 17, 2018, decision to decline the fifth amendment . . .
to CR/ZWS[’]s . . . joint venture agreement.”); see also id. Tab 96 at 744–46.

17

employ, consisting of the quality control manager, the quality control inspector, the scale
operator, and the landfill operator, would be hired “en masse” from ZWS. AR Tab 100 at 806. In
addition, the SBA concluded that—notwithstanding the representation that Charitar would be
performing 40% of the work on the contract—it appeared that Charitar’s role would be largely
confined to administrative tasks and executive oversight of the contract. Accordingly, the SBA
found, Charitar would not gain any “actual performance experience in the delivery of services on
the base.” AR Tab 67 at 574. Further, the SBA observed that Charitar had no prime contracting
experience in solid waste collection services while ZWS, the incumbent, “ha[d] all the
experience, equipment and personnel needed to perform the government contract at issue.” Id. at
575.
In short, the SBA concluded that:
[I]f Charitar does not possess some experience in refuse services and
the applicable NAICS code [for solid waste collection services], and
if Charitar lacks essential vehicles that cannot be obtained from an
outside source based on restrictions in the Solicitation’s
Performance Work Statement except from ZWS, and Charitar is
wholly dependent on ZWS for performance of a contract due to its
lack of experience and/or resources, then we have issues of negative
control.
Id. And, “[i]f Charitar brings very little to the joint venture relationship in terms of resources and
experience other than its 8(a) status,” the SBA observed, it “should not approve the joint venture
agreement.” Id. (citing 13 C.F.R. § 124.513(a)(2)). These conclusions, in conjunction with the
findings described above, supply the requisite “rational connection between the facts found and
the choice made.”
Further, the Court concludes that CR/ZWS has not identified any legal errors in SBA’s
determination. First, CR/ZWS is incorrect that the SBA imposed a requirement that Charitar
invest an equal amount of resources and equipment in the joint venture. Rather, as noted above,
the SBA considered the significant disparity between each venturer’s contribution of equipment
as one factor supporting its conclusion under 13 C.F.R. § 124.513(a)(2) that “Charitar would
bring very little in terms of contract resources” and that the amendment, therefore, would not be
fair and equitable. Id. Tab 100 at 805. In addition, as a result of the requirements of Executive
Order 13,495, all employees on the contract (other than the project manager) would likely either
be current or former ZWS employees, rather than employees brought on independently by
Charitar.12

12

CR/ZWS contends that taking the right of first refusal under Executive Order 13,495 into
consideration makes it difficult for an 8(a) participant to form a joint venture with an incumbent
contractor. Pl.’s Mem. at 25. But the SBA’s non-eligibility finding was not based solely on the
fact that the contract would be primarily staffed by current or former ZWS employees; the SBA
also looked at the fact that ZWS was supplying the lion’s share of the equipment and that
Charitar brought little else in terms of resources and expertise to the contract.

18

In short, the equipment, expertise, and experience necessary for performance of the
contract would be supplied almost exclusively by ZWS, not Charitar. And even leaving aside the
requirements of the Executive Order, it is not surprising that the SBA concluded that Charitar
would bring little to the joint venture in terms of expertise and experience. Charitar, after all, is a
real estate, janitorial, and property maintenance firm; it does not perform services under the
NAICS code applicable to the procurement for refuse and recycling services. Compare id. Tab
30 at 167 with id. Tab 82 at 678.
The record similarly supports the SBA’s skepticism regarding whether Charitar would
actually perform 40% of the non-administrative and non-ministerial tasks under the contract, as
well as its conclusion that Charitar would not gain sufficient substantive experience to justify
approving the joint venture arrangement. While the proposed amendment represents that Charitar
“will perform forty percent (40%) of the work,” section 3.4.2 specifies that the work Charitar
would perform would involve “overall executive oversight,” including tasks such as “workforce
management, recycling services, contract administration, union negotiations[,] and monthly
contract report[s].” Id. Tab 87 at 705. Meanwhile, as the SBA observed, the terms of
Amendment 5 and of the procurement’s performance work statement indicated that “ZWS—or
former employees of ZWS—would have been exclusively responsible for refuse collection,
refuse delivery, recycling delivery, and landfill operation,” which were “four of the five essential
functions for the Army.” Id. Tab 100 at 807.
Finally, the Court notes that CR/ZWS has challenged the SBA’s conclusion that
Charitar’s designation of [***] as its project manager was defective under 13 C.F.R.
§ 124.513(c)(2) because Charitar failed to submit a signed commitment letter executed by [***].
Under that provision:
[T]he individual identified as the project manager of the joint
venture need not be an employee of the 8(a) Participant at the time
the joint venture submits an offer, but, if he or she is not, there must
be a signed letter of intent that the individual commits to be
employed by the 8(a) Participant if the joint venture is the successful
offeror.
Id.
It is not entirely clear to the Court that this regulatory language supports the SBA’s
conclusion that [***]’s designation was defective. On the one hand, the Court notes that the
aforementioned regulatory language does not express any requirement that a letter of intent be
incorporated into a joint venture agreement or submitted to the SBA. It states merely that “there
must be a signed letter of intent,” which means, literally, that such a letter must exist. This
passive language stands in contrast to the other language of the regulation, which imposes
affirmative requirements regarding what statements, designations, specifications, and
itemizations must be included in the provisions of the joint venture agreement. See, e.g., id.
§ 124.513(c) (“Every joint venture agreement . . . must contain a provision . . . setting forth the
purpose of the joint venture . . . .”). Moreover, Charitar notes (and the government does not
deny) that the SBA approved two earlier amendments to the joint venture agreement where the
proposed project manager was not a current Charitar employee, notwithstanding that Charitar did

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not submit a letter of intent to the SBA. See AR Tab 85 at 692; id. Tab 86 at 698; Pl.’s Mem. at
23–24 & n.3.
On the other hand, the requirement that there “must be a signed letter” is found within
subsection (c) of the regulation, which is entitled “[c]ontents of joint venture agreement[s].” 13
C.F.R. § 124.513(c). Moreover, it is difficult to see how the SBA could effectively review the
joint venture’s compliance with this requirement if the joint venture was not required to include
such a letter when it submitted its joint venture agreement for review. Such an interpretation
might impose a needless additional step onto what is already a constrained timeframe, by
requiring the SBA to inquire of joint ventures whether they possessed such letters.
But even if the Court was to conclude that the SBA erred when it found the designation
of [***] defective, CR/ZWS was not significantly prejudiced by such an error, as is required to
prevail in a bid protest. See Bannum, Inc., 404 F.3d at 1353 (citing Alfa Laval Separation, Inc. v.
United States, 175 F.3d 1365, 1367 (Fed. Cir. 1999); Statistica, Inc. v. Christopher, 102 F.3d
1577, 1581 (Fed. Cir. 1996); and Data Gen. Corp. v. Johnson, 78 F.3d 1556, 1562 (Fed. Cir.
1996)). To establish “significant prejudice,” CR/ZWS must show that there was a “substantial
chance” it would have received the contract award but for the supposed error regarding the letter
of intent. See id. In light of the other grounds articulated by the SBA for rejecting Amendment 5
(and found to be rational by the Court), the Court concludes that CR/ZWS has failed to make
such a showing.13
In the end, what is ultimately at issue here is whether the amendment to the joint venture
agreement between Charitar and ZWS promotes the underlying purposes of the Business
Development Program as reflected in 13 C.F.R. § 124.513. That regulation authorizes an 8(a)
concern that would otherwise lack the capacity to perform a contract to partner with a more
experienced, non-8(a) concern through a “fair and equitable” joint venture agreement, and
authorizes an agency to award the contract to the joint venture. But in order for the joint venture
to be eligible for a contract set aside for 8(a) concerns, the joint venture arrangement must
provide a “substantial benefit” to the 8(a) concern—i.e., it must enhance the 8(a) concern’s
future capacity to win and perform similar contracts on its own. At the same time, to ensure that
the 8(a) concern will provide more than window dressing, which would allow the non-8(a)

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CR/ZWS also raises a concern about the SBA’s citation of its recent decision in Charitar
Realty, SBA No. SIZ-5806 (Jan. 25, 2017) as a basis for denying reconsideration. Pl.’s Mem. at
29. In that decision, the SBA concluded (as discussed above) that the arrangement between
Charitar and ZWS in connection with a custodial, landscaping, and grounds maintenance
contract ran afoul of the ostensible subcontractor rule because Charitar, the prime contractor, was
unduly reliant upon ZWS, its subcontractor. CR/ZWS contends that the SBA’s citation of this
decision demonstrates that the SBA improperly incorporated “ostensible subcontractor”
principles into the joint venture arena. Id. The Court disagrees. The SBA did not find CR/ZWS
ineligible because of an application of the “ostensible subcontractor” rule; instead it cited its
findings of “undue reliance” in Charitar Realty as informing its inquiry here as to whether
Charitar would reap any benefit if the contract was awarded to CR/ZWS, as required by 13
C.F.R. § 124.513(a)(2).

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concern to qualify for a contract award that it would not otherwise be eligible to receive, the
SBA requires the 8(a) concern to bring more to the table than its 8(a) status.
Ultimately, the determination of how the balance should be struck upon consideration of
the relevant factors is one entrusted to the SBA, not this Court. The government, accordingly, is
entitled to judgment on the administrative record as to CR/ZWS’s claim that the SBA’s
determination of non-eligibility was arbitrary, capricious, and inconsistent with law.
CONCLUSION
For the foregoing reasons, CR/ZWS’s motion for judgment on the administrative record
is DENIED and the government’s cross-motion for judgment on the administrative record is
GRANTED. The Clerk is directed to enter judgment accordingly. Each side shall bear its own
costs.
IT IS SO ORDERED.
s/ Elaine D. Kaplan
ELAINE D. KAPLAN
Judge

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