[00:00:00] Speaker 06:
Good morning.

[00:00:02] Speaker 06:
We have four argued cases this morning.

[00:00:05] Speaker 06:
The first of these is number 14-51-40, Tenton Falls, Lodging Wheelty versus United States, Mr. Doherty.

[00:00:17] Speaker 01:
My name is Lee Doherty.

[00:00:20] Speaker 01:
I'm here on behalf of Tenton Falls.

[00:00:25] Speaker 01:
This case is an appeal from the Court of Federal Claims

[00:00:30] Speaker 01:
on a bid protest, which was filed as an appeal of an SBA Office of Hearing and Appeals decision.

[00:00:43] Speaker 04:
Council, before you go further, let me ask you a preliminary question.

[00:00:47] Speaker 04:
Do we have jurisdiction in this case?

[00:00:49] Speaker 04:
I mean, do you have standing?

[00:00:50] Speaker 01:
I believe we do, Your Honor.

[00:00:53] Speaker 01:
I assume the Court is referring to whether or not Tenton Falls specifically has standing?

[00:00:58] Speaker 01:
Correct.

[00:01:00] Speaker 01:
That matter was argued fairly extensively under a motion to dismiss in the Court of Federal Claims.

[00:01:07] Speaker 01:
What the court determined in that case, and I believe is the correct call, is that because Tenton Falls does stand as any other offer or if the court were to reverse the lower court's decision and find that in this case DMC was in fact in violation of the sensible subcontractor rule and was a large business,

[00:01:28] Speaker 01:
There were no other small businesses available for this award or that submitted proposals for this award.

[00:01:34] Speaker 01:
Therefore, it goes back to the beginning, back to the agency to determine what their procurement plans would be, in which case, Denton Falls would stand as any other potential offer would stand.

[00:01:48] Speaker 01:
And that was the determination.

[00:01:49] Speaker 04:
Are you saying that if it's rebid, that it would be an unrestricted bid?

[00:01:55] Speaker 04:
That it would be open to everyone?

[00:01:57] Speaker 01:
That would be our argument, Your Honor, but I don't know that we need to get there, but our argument would be that this was set aside for small businesses.

[00:02:07] Speaker 01:
There were no other small businesses left other than DMC.

[00:02:10] Speaker 01:
We've argued that DMC is not a small business either.

[00:02:12] Speaker 01:
Therefore, there would be no other small businesses that are available for this order.

[00:02:17] Speaker 04:
What evidence is in the record that there's no other small business?

[00:02:21] Speaker 04:
What's that, Your Honor?

[00:02:22] Speaker 04:
What evidence is there that there are no other small businesses

[00:02:25] Speaker 01:
And no other small businesses submitted proposals for this.

[00:02:29] Speaker 06:
Well, would the competition be opened up so that additional small businesses could bid on it?

[00:02:34] Speaker 06:
What would happen if the procurement were set aside?

[00:02:38] Speaker 01:
If the procurement was set aside, in this case again, if we were to follow the same procurement plan as was followed in the first instance, and that is it was set aside for small businesses, I would submit that there are no other small businesses available.

[00:02:52] Speaker 01:
Unless there are other small business out there that did not submit proposals the first time around.

[00:02:57] Speaker 01:
That's a possibility though, right?

[00:02:59] Speaker 01:
It is a possibility, but it's just as equally possible it wouldn't be.

[00:03:02] Speaker 03:
I guess the point is you don't need to prove that without a doubt the government would rebid this in an open way.

[00:03:13] Speaker 03:
All there needs to be is a chance that they will strike down the small business set-aside requirement and have an open bid.

[00:03:21] Speaker 03:
That would make you eligible.

[00:03:22] Speaker 03:
on a second round.

[00:03:23] Speaker 01:
That's correct, Your Honor.

[00:03:24] Speaker 01:
And again, the facts of the case would support that proposition because there are no other small businesses... On this first round, there were eight bidders, right?

[00:03:35] Speaker 03:
That's correct.

[00:03:35] Speaker 03:
And DMC was the winning bidder, but it was almost by default because the other seven got knocked out.

[00:03:42] Speaker 01:
That's correct, Your Honor.

[00:03:44] Speaker 03:
So now you're trying to knock out DMC.

[00:03:46] Speaker 01:
That's correct, Your Honor.

[00:03:48] Speaker 01:
Our position is that

[00:03:50] Speaker 01:
DMC, like several of the other companies, including my client, is not a small business.

[00:03:56] Speaker 01:
And therefore, there are no small businesses available to perform this contract.

[00:04:00] Speaker 01:
Again, Your Honor, to go back to your question.

[00:04:02] Speaker 04:
Couldn't they rebid on a restricted basis and attract other bidders that are small businesses?

[00:04:10] Speaker 01:
That's a possibility.

[00:04:11] Speaker 01:
They would have to go back, do the market research,

[00:04:13] Speaker 01:
follow all the relevant regulations to determine whether or not there are two or more small business offer wars that are eligible.

[00:04:19] Speaker 01:
Again, the market research that was done the first time indicated these eight companies, seven of which have been knocked out.

[00:04:26] Speaker 04:
Well, I ask that because in our case of Galen Med Associates versus United States, we said that the claimant, you have to show that there's a substantial chance that you would receive the contract award but for the year.

[00:04:40] Speaker 04:
It seems to me that you're

[00:04:42] Speaker 04:
Your substantial chance has a little bit of speculative taint to it.

[00:04:48] Speaker 01:
And again, Your Honor, I would submit that we would have just as much a substantial chance as any other potential offer were.

[00:04:57] Speaker 01:
We were an actual offer in this initially until found to be a large business.

[00:05:01] Speaker 01:
And because there's no one else in the competition left, it has to go back and start back from the beginning

[00:05:11] Speaker 01:
including potential market research of whether or not there are, in fact, small businesses eligible to do this.

[00:05:16] Speaker 06:
And if they find that they don't have to bid it on a restrictive basis if their market research finds that there are not small businesses available to do it, or more than one, right?

[00:05:30] Speaker 01:
Then it would be open to large businesses.

[00:05:34] Speaker 01:
And again, then all of those that were knocked out would then be eligible to compete.

[00:05:39] Speaker 06:
In terms of the merits here, isn't it pretty clear from the solicitation that the contractor is supposed to find hotel rooms from subcontractors rather than to provide hotel rooms in hotels that it itself owns?

[00:05:58] Speaker 01:
I don't find that in the solicitation, Your Honor.

[00:06:00] Speaker 01:
Again, if the solicitation itself is viewed in its totality, this was a solicitation

[00:06:09] Speaker 01:
for two things, hotels and transportation.

[00:06:13] Speaker 01:
That's how the solicitation is titled, the solicitation for hotels and transportation.

[00:06:17] Speaker 01:
The bulk of that solicitation, overwhelming bulk of that solicitation is for hotel rooms.

[00:06:26] Speaker 01:
My client owns hotels.

[00:06:28] Speaker 01:
They submitted under the NAICS code for hotels, again, the NAICS code selected for hotel rooms, not the management coordination piece.

[00:06:39] Speaker 01:
In viewing that solicitation, what was requested, the awardee's proposal, 82 of 91 pages, were for hotel rooms.

[00:06:51] Speaker 03:
I guess just following up on Judge Dyck's question, when I read the solicitation, it seems to contemplate that the contractor, the awardee, is not necessarily going to own and control all the different hotels.

[00:07:08] Speaker 03:
Like there's got to be a primary hotel.

[00:07:11] Speaker 03:
And then the contractor also has to make sure that there are overflow hotels that can also accommodate all these people.

[00:07:23] Speaker 03:
So it seems like there's a multiple set of hotels that are being requested in the contract.

[00:07:30] Speaker 01:
But I think in order to go to that point, we're assuming that the solicitation did not contemplate small business hotels.

[00:07:39] Speaker 01:
And again, when the market research was done, the contemplation was that there are small businesses who own hotels who are able to provide these services.

[00:07:48] Speaker 06:
In market research, where's that in the record?

[00:07:53] Speaker 06:
What's that, Your Honor?

[00:07:54] Speaker 06:
I thought you said that the market research that was done showed they were looking for small businesses that owned hotels.

[00:08:02] Speaker 01:
That would be my argument, Your Honor, because they set it aside for small businesses.

[00:08:07] Speaker 06:
Well, yeah, but where in the record does it show that the market research looked for small businesses that owned hotels?

[00:08:17] Speaker 01:
Well, again, Your Honor, what I would... Oh, no.

[00:08:20] Speaker 06:
Try to answer my question.

[00:08:21] Speaker 06:
I thought you said that the market research showed that they were looking for small businesses with hotel ownership.

[00:08:29] Speaker 06:
Where do I find that in the record?

[00:08:31] Speaker 01:
I believe the solicitation, Your Honor, indicates that.

[00:08:35] Speaker 01:
It doesn't per se say we want small business that own hotels, but it lays out a small business NAICS code for hotels, not management, not coordination, not services for hotels.

[00:08:49] Speaker 04:
But was there a market research study done in this regard?

[00:08:54] Speaker 01:
It's required by regulation and I think it's been mentioned.

[00:08:57] Speaker 01:
I don't think it's part of your record, but there was market research done.

[00:09:02] Speaker 06:
Is it in the original record, the market research?

[00:09:06] Speaker 01:
It is, Your Honor.

[00:09:10] Speaker 01:
And again, my client was part of that determination, but subsequent to that was found to be large.

[00:09:16] Speaker 01:
So there were at the time eight companies determined to be small businesses who could manage this contract.

[00:09:24] Speaker 01:
Seven of them were eliminated, leaving one.

[00:09:29] Speaker 06:
Well, apart from the code, what is there in the record that suggests that

[00:09:35] Speaker 06:
they were contemplating hotel ownership by the contractor.

[00:09:41] Speaker 01:
I don't necessarily believe that it had to be contemplated that the contractor winning this award could not subcontract out to other hotel rooms.

[00:09:54] Speaker 01:
But in order to not violate the ostensible subcontractor rule, that contractor, in my opinion, has to contract with small businesses.

[00:10:06] Speaker 01:
In this case, this contractor contracted with the largest lodging company in the world, not a small business.

[00:10:14] Speaker 01:
So I believe reading the solicitation, the solicitation contemplates that this is a small business set aside, that these revenues are meant to go to small businesses.

[00:10:24] Speaker 01:
Whether or not the contractor owns the hotel or subcontract that to other small business hotels that meet the technical requirements, I believe two of the

[00:10:34] Speaker 01:
of the offerors were not excluded for, because they were large, but because they were technically unacceptable.

[00:10:40] Speaker 01:
They were too far or there were other requirements that they didn't meet under the hotel requirements.

[00:10:46] Speaker 01:
So again, I believe that the solicitation as read as a whole would indicate that this is meant as a small business set aside and as a whole.

[00:10:57] Speaker 06:
But if it was contemplated that they might

[00:11:01] Speaker 06:
subcontract the hotel rooms themselves to someone else.

[00:11:05] Speaker 06:
Doesn't that suggest that the primary and vital requirement of the contract was arranging for the rooms?

[00:11:14] Speaker 01:
I would not see that, Your Honor.

[00:11:16] Speaker 01:
I would not agree with that.

[00:11:18] Speaker 01:
If you look at, I think that those services are obviously important services.

[00:11:24] Speaker 01:
They are, they may even be vital, but are they the primary services?

[00:11:29] Speaker 04:
How can they not be the primary if there's no information as to what the actual requirements are?

[00:11:38] Speaker 04:
It's unknown how many troops are involved and how many meals are going to be involved.

[00:11:49] Speaker 01:
It isn't the possibility that there could be 10,000 troops or one troop.

[00:11:54] Speaker 01:
There's a fairly narrow range of what is

[00:11:58] Speaker 01:
what is required under this contract, although it is a indefinite quantity type contract, there's a fairly narrow range of what this is.

[00:12:08] Speaker 01:
There is no coordination needed until the primary hotel has an overflow.

[00:12:17] Speaker 01:
So in fact, there could be almost no coordination on this ever if the primary hotel is, there's no ever an overflow of that primary hotel.

[00:12:26] Speaker 01:
So there's a lot of emphasis been put on

[00:12:28] Speaker 01:
on bits and pieces taken out of context out of the solicitation.

[00:12:32] Speaker 01:
But in fact, the overwhelming majority of this contract, this solicitation, is geared specifically for the hotel rooms.

[00:12:41] Speaker 01:
This is a fairly simple contract.

[00:12:44] Speaker 01:
It's a simple tab.

[00:12:44] Speaker 03:
Is there any case that says when a large percentage of the value of the contract is performed by a subcontractor, that subcontractor, then that necessarily violates the extensible subcontractor rule?

[00:12:57] Speaker 01:
That gets us back to the primary and vital determination.

[00:13:01] Speaker 01:
If it's determined that the large business is doing the primary- There's no, right?

[00:13:09] Speaker 01:
I mean, there isn't a case.

[00:13:11] Speaker 01:
There is not any, Your Honor.

[00:13:12] Speaker 01:
There's a series of cases which I think all of us have cited in our briefs that have decided this based on the fact specific for each case, one way or the other, but there's not a set number.

[00:13:27] Speaker 01:
to say, well, if it's more than 81%, then they absolutely can't do it.

[00:13:31] Speaker 01:
But if it's 79%, they can.

[00:13:33] Speaker 01:
In this particular case, the area office found that 80% initially was going to the large business.

[00:13:42] Speaker 03:
The SBA enjoys a lot of discretion and significant deference here in interpreting the solicitation, right?

[00:13:52] Speaker 01:
I believe they do some deference.

[00:13:55] Speaker 03:
got some things you can point to in the solicitation that might weigh in your favor.

[00:14:00] Speaker 03:
It appears that there are other parts of the solicitation that weigh in the SBA's reading of it.

[00:14:06] Speaker 03:
Is that also fair to say?

[00:14:08] Speaker 01:
That is fair to say, Your Honor.

[00:14:10] Speaker 01:
Though I think if you look at the totality of that solicitation and, just as importantly, the awardee's proposal of what the awardee was proposing and what the solicitation required, if management and coordination is primary and vital

[00:14:25] Speaker 01:
the primary.

[00:14:27] Speaker 01:
It may be vital.

[00:14:28] Speaker 01:
It may be important.

[00:14:29] Speaker 01:
It may be necessary and it may be impossible to separate it from this contract, but if it is the primary, then I think the question is, well, why wasn't it evaluated?

[00:14:46] Speaker 01:
If it was so important, if having that management team was so important, why wasn't the management team a key personnel in the contract?

[00:14:53] Speaker 01:
Why wasn't it evaluated?

[00:14:54] Speaker 01:
Why wasn't coordination?

[00:14:56] Speaker 06:
But if we give, do we give Chevron deference to the SBA's interpretation?

[00:15:02] Speaker 01:
Your Honor.

[00:15:02] Speaker 06:
Cleveland baseball deference, I guess, since it's a regulator.

[00:15:06] Speaker 06:
The regulations here are SBA regulations, correct?

[00:15:11] Speaker 01:
That's correct, Your Honor.

[00:15:12] Speaker 06:
And we have a decision by the SBA administrative judge making a determination that this satisfies the requirements of the regulations, right?

[00:15:23] Speaker 06:
That's correct, Your Honor.

[00:15:24] Speaker 06:
So, wouldn't we give that deference, I guess it's not Chevron deference, but rather Cleveland baseball deference or our deference?

[00:15:32] Speaker 06:
Don't we give deference to the interpretation rendered by the SBA under that line of Supreme Court cases?

[00:15:40] Speaker 01:
I think if this Court finds that the decision by the SBA was not arbitrary, capricious, of discretion, abusive discretion, or otherwise contrary to the law, then yes.

[00:15:51] Speaker 01:
then this court has to find it.

[00:15:53] Speaker 01:
But the court, under the standard review, which I don't think is disputed, this court has to look at whether or not that decision was rational.

[00:16:02] Speaker 01:
And again, as we've argued in our brief, and I think the facts support, this is the end of an irrational line of cases that has been taken to the point where I don't know where that ends, where to go to, Your Honor, your point, where is that number?

[00:16:21] Speaker 01:
If they had done 95% of the work, would that be the number?

[00:16:25] Speaker 01:
If it were 90%, would that be the number?

[00:16:27] Speaker 01:
The only case cited contrary was one where the SBA overruled because 100% of the work was going to a large business.

[00:16:37] Speaker 01:
I don't know where that number is, but I think this is too far.

[00:16:42] Speaker 01:
This has gone too far in allowing a large business to take advantage of a small business set aside that was meant to support small businesses.

[00:16:51] Speaker 01:
Okay, into your rebuttal time.

[00:16:54] Speaker 01:
Do you want to save the rest of it?

[00:16:55] Speaker 01:
I will save, Your Honor.

[00:16:56] Speaker 01:
Thank you.

[00:16:56] Speaker 01:
Thank you.

[00:16:59] Speaker 06:
Mr. Williams.

[00:17:02] Speaker 05:
It's actually Mr. Yale.

[00:17:03] Speaker 05:
Mr. Yale.

[00:17:04] Speaker 05:
Okay, we've got the room recorded on our sheet here.

[00:17:07] Speaker 02:
Go ahead.

[00:17:07] Speaker 02:
May it please the Court, Nathaniel Yale arguing on behalf of the United States, contrary to the assertions made by- Mr. Yale, you didn't raise a jurisdiction question in your brief, right?

[00:17:17] Speaker 03:
Is that because you feel like there is a substantial chance that if this, you know, if we were to reverse here that Tenden Falls would be able to be awarded the contract?

[00:17:28] Speaker 02:
We made the jurisdictional, not the subject matter jurisdictional argument, but the standing argument below along the lines of what you were just discussing.

[00:17:36] Speaker 02:
Right, but what about now?

[00:17:38] Speaker 02:
We didn't raise it in our brief.

[00:17:42] Speaker 02:
You know, I think we made that decision.

[00:17:45] Speaker 02:
We felt like there was a

[00:17:47] Speaker 02:
strong basis to affirm based upon the merits of this case.

[00:17:50] Speaker 02:
And we felt that we didn't pursue the standing argument.

[00:17:55] Speaker 06:
Isn't this, my recollection is that in Impreza decision by this court, we held that if a contract had to be rebid and the challenger could rebid on the contract, that that was sufficient to confer standing.

[00:18:12] Speaker 06:
Do you remember that case?

[00:18:15] Speaker 02:
That was a case that certainly was discussed at CovC.

[00:18:19] Speaker 02:
I do remember that case.

[00:18:23] Speaker 02:
I think below, we attempted to distinguish that case based upon the fact that I feel like in Impreza, if there was a re-solicitation, the only thing wrong with the individual, the entity that had been

[00:18:41] Speaker 02:
kicked out before was that they had not filed a complete proposal.

[00:18:44] Speaker 02:
So if it went out to complete open competition, they could fix their proposal and come back in.

[00:18:53] Speaker 02:
This case is a little different because obviously Tinton Falls has been ruled not to be a small business.

[00:19:02] Speaker 02:
If the contract is re-solicited on a small business basis, they would still be ineligible

[00:19:10] Speaker 06:
What would the criteria be for determining whether it was resolicited on a small business basis or not?

[00:19:17] Speaker 02:
Well, additional market research, they would have to go back to the beginning and do another round of market research.

[00:19:25] Speaker 02:
Certainly, I think... In any event?

[00:19:27] Speaker 02:
If it's back to full and open competition, if there's no

[00:19:32] Speaker 02:
If there's no offers remaining, which would be the case if DMC was no longer the awardee, then the agency would have the obligation to evaluate based upon the market research which would have to be conducted whether or not this could be set aside for small business or not.

[00:19:53] Speaker 04:
Would they evaluate whether to set it aside or whether to open it up with no restrictions?

[00:19:59] Speaker 04:
What's the first

[00:20:01] Speaker 02:
What's the first avenue that the SBA would look at?

[00:20:05] Speaker 02:
Well, first, they would conduct the market research to determine whether or not their two or more small businesses would likely.

[00:20:12] Speaker 04:
OK, so assuming that it's rebid, would Tinton Falls be a qualified bidder at that point?

[00:20:22] Speaker 02:
Well, I mean, I think for the reason they've already been determined as to this solicitation to not be a small business based upon affiliation.

[00:20:30] Speaker 02:
So the answer would be no.

[00:20:31] Speaker 02:
The answer is no although I think whether or not an entity is a small business or not is generally determined on a solicitation by solicitation basis but likely given the fact that the solicitation is going to be almost the same likely that likely they would certainly not be considered a small business for a set of signs.

[00:20:53] Speaker 04:
So to say that at this point to say that they would re-bid on a

[00:20:58] Speaker 04:
unrestricted basis, it's speculation.

[00:21:02] Speaker 02:
It is speculation.

[00:21:04] Speaker 02:
That's certainly the argument that we made below.

[00:21:07] Speaker 02:
Certainly there's a lot of speculation, I think, on both sides.

[00:21:10] Speaker 02:
The argument we made below is that, well, we can speculate.

[00:21:14] Speaker 02:
Obviously, the plaintiff has the burden to actually demonstrate standing.

[00:21:21] Speaker 04:
Given that potential for speculation, if not

[00:21:26] Speaker 04:
outright speculation, let's call it a potential for speculation, would you say that under Galen that that's a substantial chance, that they're showing that they have a substantial chance to win if it's rebid on a restricted basis?

[00:21:41] Speaker 02:
Well, I mean, the Galen case is not a case that came up below, you know, as far as a substantial chance.

[00:21:49] Speaker 02:
I mean, I think given the fact that there is a large measure of speculation, I think it would be difficult to determine

[00:21:56] Speaker 02:
whether or not it's a substantial chance, they would have a chance.

[00:21:59] Speaker 02:
It's all relying on the fact that this would no longer be a set-aside contract.

[00:22:03] Speaker 06:
There could only be a set-aside contract if there were market research conducted that found that there were two or more small businesses available to bid on the contract, right?

[00:22:14] Speaker 06:
Correct.

[00:22:14] Speaker 06:
Which would be?

[00:22:16] Speaker 06:
And then the assumption would be that those small businesses would be owning hotels, right?

[00:22:26] Speaker 02:
Given if the court ruled a certain way, is that?

[00:22:33] Speaker 06:
Yeah, I guess we have to assume that the court rules against your position on the merits, then would they have a substantial chance?

[00:22:41] Speaker 06:
I guess that has to be the test, right?

[00:22:44] Speaker 02:
Well, I mean, I think that there, I mean, if there is, correct.

[00:22:49] Speaker 02:
I think that's correct.

[00:22:53] Speaker 02:
Do you want to talk about the merits?

[00:22:55] Speaker 02:
Sure.

[00:22:59] Speaker 02:
There's been a lot of talk about the solicitation.

[00:23:03] Speaker 02:
I think contrary to the assertions made by Tinton Falls in this case, the SBA analyzed the solicitation and pointed to a number of sections that support its reading.

[00:23:18] Speaker 02:
There's the scope of work.

[00:23:19] Speaker 02:
There's the special requirements section.

[00:23:21] Speaker 02:
There's the past performance section.

[00:23:23] Speaker 02:
Certainly, Titan Falls has pointed to certain aspects of the solicitation that mention hotels, but certainly in evaluating what the SBA did, I think they've certainly pointed to enough in the solicitation and frankly reading it, I think the contract makes sense that what the Navy's Military Sealift Command, what they were, you know, the background to this is

[00:23:52] Speaker 02:
They have a training in Freehold, New Jersey, civilian mariners come, but it's really, it's unclear from week to week how many are going to come.

[00:24:02] Speaker 02:
Some weeks it could be one, some weeks it could be 25, some weeks it could be 75.

[00:24:06] Speaker 02:
And I think the solicitation reflects that fact and certainly leads to the conclusion that coordination and management is the primary and vital requirement of this contract.

[00:24:24] Speaker 02:
And so certainly Tintin Falls has a different reading of the solicitation.

[00:24:32] Speaker 02:
They're certainly pointing to different parts.

[00:24:35] Speaker 02:
But I think that there are several aspects of the solicitation that weighs in favor of OAAS determination.

[00:24:44] Speaker 02:
I would also say that seemingly by Tintin Falls' argument, what they're looking for is simply a rule

[00:24:54] Speaker 02:
a straight line rule that under the ostensible subcontractor rule that you know the primary and vital requirements is simply determined by quantity.

[00:25:06] Speaker 02:
You know that essentially if somebody is if one subcontractor is doing the most amount of work in terms of receipts under the contract that that's

[00:25:19] Speaker 02:
That's it.

[00:25:19] Speaker 02:
That's the whole ball game.

[00:25:22] Speaker 02:
And I just don't think that there's any cases supporting that.

[00:25:26] Speaker 02:
And frankly, as Your Honor pointed out, this is an SBA regulation.

[00:25:32] Speaker 02:
And as an SBA regulation, it's going to the heart of what the SBA does, trying to determine who or who should not be considered a small business for procurements.

[00:25:46] Speaker 03:
Do you think that's what happened here?

[00:25:47] Speaker 03:
Do you think there was an

[00:25:49] Speaker 03:
formal interpretation of a regulation in this case?

[00:25:52] Speaker 02:
Well, I certainly think that there, in terms of how OHA analyzed it, I think that they looked at the ostensible subcontractor and interpreted the regulation as to how to determine the primary and vital requirement.

[00:26:07] Speaker 02:
The way they did that was to say, well, first, we have to go and look at the solicitation.

[00:26:12] Speaker 03:
Yeah, they looked at the requirements of the solicitation and said, well, we think it's X, not Y. It's the primary and vital requirement.

[00:26:20] Speaker 03:
It's clear to me that that's the same thing as saying, when we say primary and vital requirement in the regulation, we mean X. Well, they were certainly tying into the regulation.

[00:26:32] Speaker 02:
I mean, I think that there could be

[00:26:37] Speaker 02:
several possible interpretations of that regulation.

[00:26:40] Speaker 02:
I think, as I mentioned before, one potential interpretation would be just some sort of a straight quantity determination in terms of... Which is the challenger's argument.

[00:26:55] Speaker 02:
Right.

[00:26:56] Speaker 06:
And they're rejecting that interpretation of the regulation, the quantity governance, right?

[00:27:02] Speaker 02:
Correct.

[00:27:03] Speaker 02:
But OHA interpreted its own regulation and

[00:27:06] Speaker 02:
found that that's not, you know, you do not have to defer to simply quantity.

[00:27:12] Speaker 02:
You're looking at the solicitation as well as quality factors, which I think is pervasive throughout the case law.

[00:27:19] Speaker 03:
Could there be a tipping point though?

[00:27:21] Speaker 03:
What if the contractor did literally 1% of the value of the contract and the subcontractor doing 99% of it?

[00:27:29] Speaker 02:
Well, as Mr. Doherty pointed out, there is at least one

[00:27:33] Speaker 02:
SBA OHA case where the sub was performing 100 percent.

[00:27:38] Speaker 02:
Certainly that seems to be too much.

[00:27:41] Speaker 06:
You know, here... Your point is that quantity doesn't determine it.

[00:27:48] Speaker 06:
Correct.

[00:27:50] Speaker 06:
Correct.

[00:27:52] Speaker 06:
They have to be doing, the small business has to be doing something under the contract which is primary and vital.

[00:28:00] Speaker 02:
Certainly.

[00:28:00] Speaker 02:
And if the SBA wanted to have a regulation that specifically said that quantity was determinative, they certainly could have done so.

[00:28:10] Speaker 04:
Well, then why didn't the SBA issue a solicitation that focused on management and coordination as opposed to lodging and transportation requirements?

[00:28:22] Speaker 04:
When it says lodging and transportation requirements, you're looking at room size, type of buses, capacity of buses,

[00:28:29] Speaker 04:
all the requirements in order to fulfill the contract.

[00:28:34] Speaker 04:
And yet the interpretation turns around and says, no, even though that's what the solicitation focuses on, that's not what we're looking for.

[00:28:41] Speaker 04:
We're just looking for a coordinator.

[00:28:44] Speaker 02:
Well, I believe you said the SBA.

[00:28:47] Speaker 02:
So the Military Sealift Command issued the solicitation.

[00:28:51] Speaker 02:
I guess I don't agree sort of with

[00:28:57] Speaker 02:
sort of the reading of the solicitation.

[00:29:00] Speaker 02:
I mean, I think the reading that OHA gave to those solicitations certainly points to several aspects that go towards the coordination and management point.

[00:29:12] Speaker 02:
Certainly, we're not contesting the fact that it mentions requirements for hotels, but I think read as a whole the underlying purpose that the Navy was contracting for

[00:29:26] Speaker 02:
was really coordination and management.

[00:29:29] Speaker 02:
And as I said before, part of it has to do with the indefiniteness and the fact that from week to week, it's just unclear how many civilian manners are going to show up for this training.

[00:29:40] Speaker 02:
And so, really coordination and management are key to the contract.

[00:29:46] Speaker 05:
Okay.

[00:29:47] Speaker 05:
No other questions?

[00:29:48] Speaker 05:
If I have any more time, I'll yield it to... Okay.

[00:29:51] Speaker 05:
Well, no, you were actually out of time.

[00:29:53] Speaker 02:
Thank you.

[00:29:53] Speaker 02:
Thank you.

[00:29:54] Speaker 06:
Thank you, Mr. Yale.

[00:30:02] Speaker 00:
Good morning.

[00:30:03] Speaker 00:
John Williams for DMC Management Services.

[00:30:07] Speaker 00:
I'm going to use my time to talk about standing.

[00:30:09] Speaker 00:
It was something that we did affirmatively raise in our brief.

[00:30:13] Speaker 00:
We do not believe that Tenton Falls has standing because they don't have a direct economic interest in this procurement.

[00:30:20] Speaker 00:
They don't have a substantial chance of winning a hypothetical re-competition.

[00:30:26] Speaker 00:
And I think there's two reasons for that, one of which we've been talking about already

[00:30:30] Speaker 00:
the speculation about whether or not a new competition would be reserved for small businesses.

[00:30:35] Speaker 00:
And that's the best we can do is speculate whether it would be reserved or not reserved.

[00:30:39] Speaker 06:
Well, but you don't know one way or the other except that what you do know is that every small business who bid on this contract is either not a small business or is out.

[00:30:50] Speaker 00:
Well, there's, I think that, let me make a clarification on that.

[00:30:54] Speaker 00:
There are two types of affiliation.

[00:30:57] Speaker 00:
Some of it is contract specific, some of it is ongoing.

[00:31:01] Speaker 00:
The type of affiliation that's alleged against DMC, Ostensible Subcontractor Affiliation, is contract specific, meaning that they can write a new arrangement for a new solicitation and not have the same affiliation they may be found to have for this procurement.

[00:31:17] Speaker 00:
Other types of affiliation are based on common ownership and management, what they consider to be ongoing affiliation.

[00:31:24] Speaker 00:
The Tinton Falls and their affiliated offerors, they were eliminated based on ongoing affiliation.

[00:31:30] Speaker 00:
They would not be eligible to bid for any future small business project unless they made major restructuring to the way their companies are set up.

[00:31:38] Speaker 00:
DMC, so the point I'm making is that some small businesses that might have been eliminated from this procurement could turn around tomorrow and legitimately bid as small for a new procurement

[00:31:49] Speaker 06:
under a different solicitation?

[00:31:52] Speaker 06:
Well, why do you assume that?

[00:31:56] Speaker 06:
There's no reason to think the solicitation would change.

[00:31:59] Speaker 06:
What the government suggests is they do new market research to see whether two or more small businesses

[00:32:07] Speaker 06:
who are likely to bid on this solicitation, huh?

[00:32:11] Speaker 00:
Well, I suspect they actually would change the solicitation.

[00:32:14] Speaker 00:
If the ruling went against them to make clearer in the solicitation that what they really want is management and coordination, because that's what they've said that they're looking for here.

[00:32:24] Speaker 00:
And I think the issue maybe is an imperfectly drafted solicitation that doesn't, that focuses, I think, more simplistically on what do we need for the rooms, what do we need for the buses.

[00:32:34] Speaker 00:
What are the minimum requirements in AAA rating and funds?

[00:32:37] Speaker 06:
What you're saying is that in a situation like this, there would never be anyone who had standing unless that person qualified as a small business under the contract, under the solicitation.

[00:32:51] Speaker 00:
Well, I think there's a real difficulty for a business that is large to say, I have standing to challenge what has been a set aside procurement.

[00:33:03] Speaker 00:
They tried to participate in it as a source of interest.

[00:33:05] Speaker 06:
Well, why would they be doing it if they didn't think they had a substantial chance of getting the contract?

[00:33:10] Speaker 00:
Well, that's an interesting question because, in fact, they bid this procurement not to win.

[00:33:16] Speaker 00:
What we argued in our brief and what the record demonstrates is that there were four affiliated bidders, Tinton Falls, the incumbent contractor, a company called Mali, and two other firms.

[00:33:28] Speaker 00:
And they bid it, the same person signed all the proposals, and they bid it in a way that Mali would be the lowest price.

[00:33:34] Speaker 00:
This is an LPTA, lowest price technically acceptable proposal.

[00:33:37] Speaker 00:
So in submitting proposals in contract... I don't think you're answering my question.

[00:33:41] Speaker 06:
Why would they bother to appeal here?

[00:33:44] Speaker 06:
What motive could they have other than wanting to secure the contract?

[00:33:48] Speaker 00:
Well, I would say that it's for their affiliate, Molly, to be able to pursue the work.

[00:33:52] Speaker 00:
Molly was the incumbent for this project.

[00:33:55] Speaker 00:
Molly was put forward as the lowest bidder among the four affiliated offerors for the current solicitation.

[00:34:01] Speaker 03:
They haven't... You're saying Tintin is

[00:34:03] Speaker 03:
bound somehow to have just as unpersuasive of a bid the next go around?

[00:34:09] Speaker 00:
Well, they're not bound.

[00:34:11] Speaker 00:
No, they're not bound.

[00:34:13] Speaker 00:
But necessarily, there has to be some speculation about what would happen in a hypothetical re-competition.

[00:34:19] Speaker 00:
And our position is that the way they approached the current procurement should have some bearing on our view of their chances in a hypothetical re-compete.

[00:34:29] Speaker 00:
Can we say they have a substantial chance

[00:34:32] Speaker 00:
of winning a hypothetical procurement when we don't know that it'll be full and open and we have a demonstrated history by them of not trying to submit the lowest price, of having their affiliate, Molly, submit the lowest price.

[00:34:47] Speaker 00:
I don't think that qualifies as a substantial chance.

[00:34:50] Speaker 03:
What's the likelihood that this will be set aside again in round two given that this original set aside failed, assuming that there's no qualified small business bidder?

[00:35:02] Speaker 00:
Well, we only need two small businesses.

[00:35:04] Speaker 03:
Right.

[00:35:04] Speaker 03:
And this go around, there were zero.

[00:35:06] Speaker 00:
Well, no, that's actually not correct.

[00:35:08] Speaker 00:
There were some small businesses that bid and were eliminated for other reasons.

[00:35:12] Speaker 00:
So they could conceivably correct their proposal.

[00:35:14] Speaker 03:
There was no small bidder that was capable.

[00:35:17] Speaker 00:
That survived this time.

[00:35:19] Speaker 04:
They weren't disqualified because

[00:35:23] Speaker 04:
they weren't competent or qualified to bid, correct?

[00:35:27] Speaker 00:
They didn't submit a perfect proposal.

[00:35:29] Speaker 04:
So in a re-bid, they can submit a perfect proposal.

[00:35:32] Speaker 00:
They could compete again.

[00:35:32] Speaker 04:
They can learn from the first bid and re-submit.

[00:35:35] Speaker 00:
And so could DMC, because DMC on its own is a small business.

[00:35:41] Speaker 00:
If the court viewed and OHA ultimately found that DMC's relationship with its subcontractors for this particular procurement

[00:35:51] Speaker 00:
created a sensible subcontractor affiliation, DMC would have the opportunity to change its relationship with subcontractors for the next procurement.

[00:35:59] Speaker 06:
How so?

[00:36:00] Speaker 00:
Well, if the ruling was that they're not doing enough of the primary and vital requirements, DMC could attempt to do more of whatever the view was of the primary and vital requirements.

[00:36:14] Speaker 00:
They would structure the relationship differently.

[00:36:18] Speaker 00:
Well, probably not by hotels, but there are other transport, they could become more involved with the transportation services theoretically.

[00:36:26] Speaker 00:
But I think more likely that, like I said before, the agency would rewrite this solicitation to make more clear that what they really want here is the management and coordination.

[00:36:33] Speaker 06:
How do we know that?

[00:36:35] Speaker 06:
That's not what the government said.

[00:36:36] Speaker 00:
Well, the federal biz ops synopsis says, and this is in the record, they are looking for hotels or property management companies.

[00:36:45] Speaker 00:
So they did not intend the interpretation that only hotels could bid this contract.

[00:36:51] Speaker 00:
I think it was correctly pointed out earlier that the nowhere in the solicitation doesn't require you to own a hotel.

[00:36:57] Speaker 00:
As a matter of fact, to permit you to change your secondary hotel facilities, what small business could own so many hotels that it could conceivably have three and then also possibly more to interchange the secondary facilities?

[00:37:15] Speaker 00:
They did not intend hotels to, that you had to own hotels.

[00:37:19] Speaker 00:
And I don't think they, it's not reasonable to think that they in a new solicitation would change that approach.

[00:37:26] Speaker 00:
I mean, this is the, you know, they've procured this work for a while and it's, it's been a small business set aside for a while.

[00:37:33] Speaker 06:
So I think- But your argument is that because they don't have standing, nobody gets to determine whether you qualify as a small business or not.

[00:37:45] Speaker 00:
The way that it worked out in this instance, because they don't have standing, they chose the wrong affiliate, in our view, to pursue this.

[00:37:57] Speaker 00:
Because Titton Falls, they were the fourth priced offeror.

[00:38:02] Speaker 00:
They knew going in, they were going to be no better than the third priced offeror, just amongst the four affiliated bidders.

[00:38:09] Speaker 00:
I just don't think in that situation that an offeror should then get to turn around when they didn't try to win.

[00:38:14] Speaker 00:
and then protest for years afterwards on the idea that they might try a different approach in a new procurement.

[00:38:24] Speaker 04:
So some of the companies that bid were deemed large because of the affiliation, and those affiliations are contractual.

[00:38:34] Speaker 04:
So when the company goes back to re-bid, it can revise the contract in order to either lessen the affiliation or to eliminate it altogether.

[00:38:44] Speaker 04:
And for some other companies, the affiliation is not contractual.

[00:38:49] Speaker 04:
It's ownership.

[00:38:49] Speaker 04:
It's overlapping ownership or 100% ownership of a subsidiary, let's say.

[00:38:57] Speaker 04:
That type of affiliation would not be able to be restructured for a re-bid.

[00:39:03] Speaker 00:
Well, in fact, it could, I mean, in theory, you could restruct.

[00:39:06] Speaker 00:
They could break those ties.

[00:39:07] Speaker 00:
They could sell their ownership stakes, but it's not as easy as rewriting a contractual relationship.

[00:39:13] Speaker 00:
It would require a major restructuring.

[00:39:15] Speaker 00:
They were found to be affiliated with 30 plus companies by the SBA.

[00:39:20] Speaker 00:
So it would take a major overhaul of the way they're set up in order for them to accomplish that for a new bid.

[00:39:27] Speaker 06:
Okay.

[00:39:27] Speaker 06:
Thank you, Mr. Williams.

[00:39:30] Speaker 06:
Thank you.

[00:39:32] Speaker 06:
minutes here, I think.

[00:39:35] Speaker 01:
I'll give you two minutes.

[00:39:36] Speaker 01:
And I will be brief.

[00:39:40] Speaker 01:
Two minutes.

[00:39:42] Speaker 01:
As to the standing issue, there is substantial talk about speculation, but that speculation is on both sides.

[00:39:49] Speaker 01:
If the court finds for the appellant, this solicitation starts over from zero and must begin at that point.

[00:39:57] Speaker 01:
And starting from zero, Tenton Palt has just as much

[00:40:01] Speaker 01:
opportunity and it has just as much a substantial likelihood of winning as any other potential offer were out there.

[00:40:07] Speaker 01:
I think the most the most crucial thing that Mr. Williams said was government's going to go back and rewrite this and absolutely they will.

[00:40:15] Speaker 01:
This is a because on its face it doesn't solicit management coordination.

[00:40:20] Speaker 04:
If they rewrite it if they rewrite it in order to make the the focus of the solicitation clear and it's rebid

[00:40:28] Speaker 04:
on a restricted basis for small businesses, your client would still be unqualified to bid, correct?

[00:40:35] Speaker 01:
Potentially, but as was indicated, there are ways that my client could restructure in order to be a small business again.

[00:40:44] Speaker 01:
My client was previously determined to be a small business.

[00:40:47] Speaker 04:
Have you argued before at this point that you're willing to restructure in order to be able to qualify for

[00:40:57] Speaker 04:
to re-bid on a restricted contract?

[00:41:00] Speaker 01:
I don't know whether my client would be willing to, again, but it's possible that they could and be eligible and have just as substantial likelihood of winning as any other company.

[00:41:10] Speaker 04:
But at this point, they're not, under the affiliation basis that your client has at this point, you can see that they're not qualified to re-bid on a restricted contract for small businesses.

[00:41:22] Speaker 01:
I do concede that, Your Honor, yes.

[00:41:24] Speaker 01:
The SBA, I think,

[00:41:25] Speaker 01:
found and that was not appealed that they were large business.

[00:41:30] Speaker 01:
I would disagree with Mr. Williams when he says that these various different kinds of affiliation.

[00:41:35] Speaker 01:
Affiliation is going to be determined by the procurement.

[00:41:39] Speaker 01:
So in this particular case, the government chose a NAICS code with a $30 million size limit.

[00:41:45] Speaker 01:
They could choose another NAICS code that may have a $50 million size limit.

[00:41:50] Speaker 01:
Or they could choose a NAICS code that has a $15 million size limit.

[00:41:55] Speaker 01:
A lot can happen when they go back, as the appellee said, and change the solicitation.

[00:42:02] Speaker 01:
And once they change that solicitation, we start from scratch.

[00:42:06] Speaker 01:
All we can do is speculate what the government would do.

[00:42:08] Speaker 01:
I do agree that they would go back and rewrite the solicitation, or maybe not.

[00:42:15] Speaker 01:
Again, I think it's clear in my opinion that the primary and vital services that were solicited were hotel and transportation, and that's clear.

[00:42:22] Speaker 01:
And I would close with one question, and that is, in looking at this contract and determining it as the OHA said, it is critical to determine what the primary and vital, because that will determine whether or not the ostensible contractor subcontractor rule was violated.

[00:42:44] Speaker 01:
Okay, Mr. Durden, I think we're out of time.

[00:42:46] Speaker 01:
Thank you.

[00:42:47] Speaker 01:
Can I finish my thought, Your Honor?

[00:42:48] Speaker 01:
No, I think we're done.

[00:42:49] Speaker 01:
Thank you.

[00:42:49] Speaker 06:
Thank you all, Counsel.

[00:42:50] Speaker 06:
The case is submitted.