Court of Federal Claims Reaffirms the Small Business Act’s Preference for HUBZone Business Concerns

On Friday, the Court of Federal Claims reaffirmed the Small Business Act’s (“the Act”) preference for HUBZone businesses over 8(a) businesses. DGR Associates, Inc. v. United States & General Trades & Services, Inc., No. 10-396C (Fed. Cl. Aug. 13, 2010). In sustaining DGR’s protest and permanently enjoining the award to General Trades & Services Inc., an 8(a) small business, the Court rejected executive agency memoranda stating that the Small Business Act does not mandate a preference for HUBZone businesses over 8(a) businesses and instead ruled in conformance with its previous decisions and those of the GAO that the language of the Act sets forth an unequivocal preference for HUBZone business concerns.

Quoting from the Act, the Court held that the following language explicitly set forth a preference for HUBZone businesses: “notwithstanding any other provision of law . . . a contract opportunity shall be awarded on the basis of competition to qualified HUBZone small business concerns . . . .” Rejecting the interpretation of the Act proffered by various concerned executive agencies (including the Office of Management and Budget, the Department of Justice’s Office of Legal Counsel and the Office of the Under Secretary of Defense, Director, Defense Procurement and Acquisition Policy), the Court noted that the memoranda’s conclusions were founded on the belief that Congress “could not have intended a priority for the HUBZone program,” rather than the clear text of the Act, upon which the Court relied.

The Court’s ruling confirms its previous holding that the Act contains an unambiguous HUBZone preference. See Mission Critical Solutions v. United States, 91 Fed. Cl. 386 (2010), appeal docketed, No. 2010-5099 (Fed. Cir. Apr. 2, 2010) (preference applied against Service-Disabled Veteran-Owned Small Business concern). The Court’s ruling is also in conformance with GAO decisions related to the Act’s HUBZone preference. See DGR Assocs., Inc., B-402494 (Comp. Gen. May 14, 2010); see also Mission Critical Solutions, B- 401057 (Comp. Gen. May 4, 2009); Int’l Program Group, Inc., B-400278 et al., (Comp. Gen. Sept. 19, 2008).

While the Court in DGR Associates unequivocally reiterated that the Small Business Act contains an explicit preference for HUBZone businesses, pending legislation could undermine the basis for the Court’s position. H.R. 6022, sponsored by Rep. Joe Courtney of Connecticut, would amend the Act to replace the phrase “a contract opportunity shall be awarded” with “a contract opportunity may be awarded.” By replacing “shall,” signifying a mandatory obligation, with “may,” connoting a permissive rather than obligatory act, it is likely that courts and the GAO would no longer interpret the legislation as setting forth an explicit preference for HUBZone business over 8(a) businesses and SDVOSBCs. As such, while the courts currently hold that the Act contains a mandatory preference for HUBZone businesses, this could very well change if the amendments to the Act proposed in H.R. 6022 are enacted.

The Court of Federal Claims decision can be accessed at H.R. 6022 can be accessed at E&B will keep you posted on future developments related to H.R. 6022 and the HUBZone preference. For more information, please contact Jeff Eckland at [email protected] or [nap_phone id=”LOCAL-REGULAR-NUMBER-2″].