Executive Branch Review Of Recent GAO Decisions Prioritizing HUBZone Small Businesses Over Other Preference Categories Under Way

The Executive Branch is reviewing a recent GAO determination, discussed in the E&B Alert of May 11th, that HUBZone has priority over other federal contracting preference categories such as Section 8(a) small businesses and service disabled veteran owned small businesses (SDVOSBs). On June 6th, the GAO published a reconsideration of its decision and upheld its original finding.

The GAO’s original disposition of the protest of Mission Critical Solutions found that federal agencies must determine whether a preference for HUBZone small businesses applies before they offer contracting opportunities through the Small Business Association (SBA), thereby prioritizing HUBZone small businesses over Section 8(a) small businesses and SDVOSBs. The GAO’s decision in this matter was hotly contested by the SBA on the grounds that the decision (i) overstepped the GAO’s statutory authority, (ii) erred as a matter of law in its interpretation of the phrase ‘notwithstanding any other provision of law,’ and (iii) incorrectly stated the judicial holding in Contract Management, Inc. v. Rumsfeld. On these grounds, the SBA requested that the GAO reconsider its findings. Although the GAO did reconsider its decision, it declined to alter any findings.

In response to the GAO’s decision to uphold its original decision, the Office of Management and Budget (OMB) issued a Memorandum on July 10, 2009 alerting all federal agencies that the Executive Branch is reviewing the GAO’s legal basis for its decision. Further, the OMB Memorandum instructs that the GAO’s decisions are contrary to the SBA’s regulations and are not binding. As a practical matter, therefore, until the Executive Branch’s review is complete, federal agencies should not be compelled by the GAO’s decisions to disregard the SBA’s parity regulations, nor to prioritize HUDZone small businesses over Section 8(a) small businesses or SDVOSBs. In short, the status quo remains in effect pending further review, which is expected to be concluded by July 31st. We will continue to keep you posted on these and other developments.

For additional information or if you have questions on this topic, contact Dave Laidig at [email protected] .