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INFORMATION SYS. & NETWORKS CORP. v. ABDNOR

April 21, 1988

Information Systems & Networks Corporation, et al., Plaintiffs,
v.
James Abdnor, Administrator of the U.S. Small Business Administration, et al., Defendants



The opinion of the court was delivered by: PRATT

 JOHN H. PRATT, UNITED STATES DISTRICT JUDGE.

 Plaintiffs filed this action seeking injunctive and declaratory relief and damages on February 8, 1988. A hearing was held on February 26, 1988. At plaintiffs' request, we consolidated hearing on their application for preliminary injunction with trial on the merits. *fn1" Upon careful consideration of the briefs filed by the parties and the record as a whole, we find that plaintiffs have failed to make their case.

 I.

 FINDINGS OF FACT

 A. Decision Making Process

 1. Systems Management American Inc. (SMA) was a Section 8(a) ("8(a)") certified minority owned firm under the Small Business Administration's ("SBA's") 8(a) program, 15 U.S.C. § 637(a)(1982), until October 21, 1987.

 2. SMA was the incumbent contractor and had satisfactorily performed the Navy's Shipboard Non-tactical ADP Program II (SNAP-II) 8(a) contract since 1982. SMA was at one time the Navy's recommended source for fulfillment of its SNAP-II requirements. However, the Navy did not execute contract modifications with SMA regarding options for the fiscal year 1988 to 1991 SNAP-II requirements before that company graduated from the 8(a) program.

 4. On November 9, 1987, the Navy advised SBA that SMA had graduated from the SBA program, and recommended two other companies to supply the remaining quantities of systems and installations to complete the SNAP-II program.

 5. The plaintiffs, Information Systems and Networks Corporation (ISN) and Technology Applications, Inc. (TAI), were the two 8(a) certified minority firms recommended by the Navy to meet the SNAP-II requirements for fiscal year 1988-1991.

 6. ISN is and has been an 8(a) company since August 15, 1980. It is scheduled to graduate from the 8(a) program on April 21, 1989. ISN has received over $ 53 million in 8(a) contract support covering 96 contracts. At the inception of this lawsuit, ISN had an additional fourteen months of eligibility in the 8(a) program during which it could receive additional 8(a) contracts. ISN had a net worth of $ 7.8 million dollars at the conclusion of fiscal year ("FY") 1986. ISN continued to receive all of the benefits of the 8(a) program during SBA's review of the SNAP-II requirement.

 7. TAI is and has been an 8(a) company since October 31, 1978. It is scheduled to graduate from the 8(a) program on April 21, 1988. TAI has received over $ 118 million in 8(a) contract support. TAI had a net worth of $ 4 million at the conclusion of FY 1987. TAI continued to receive all of the benefits of the 8(a) program during the SBA's review of the SNAP-II requirements.

 8. SMA has been an 8(a) company since August 27, 1971. During these sixteen years, SMA has received $ 187 million in 8(a) contract support but, at the conclusion of FY 1986, it had a net worth of only $ 149,802. By comparison, as noted, ISN and TAI had net worths of $ 7.8 million and $ 4.0 million, respectively.

 9. As noted, the Navy did not execute contract modifications with SMA to add priced options for its fiscal year 1988 to 1991 SNAP-II requirements prior to that firm's October 21, 1987 graduation. In a letter to the SBA dated November 30, 1987 the Navy indicated that it could not execute these modifications for SNAP-II after October 21, 1987, because SMA had graduated from the 8(a) program. Further, the Navy concluded that no enforceable agreement had been reached by the Navy, SBA, and SMA for the fiscal year 1988-1991 SNAP-II requirements before SMA's graduation date of October 21, 1987. *fn2" While limited portions of a tripartite agreement have been introduced, they reflect at most an expectation among the parties that they would agree on priced options for the fiscal year 1988-1991 requirements in subsequent contract modifications. Further, plaintiffs have not demonstrated that these documents were entered into for the benefit of anyone other than SMA.

 10. The Small Business Administration did not respond to the Navy's offer letter regarding TAI and ISN within ten (10) working days of November 9, 1987, because it was evaluating whether SMA had a valid contract with the Navy. It also wished to give the plaintiffs an opportunity to make detailed submissions and to be heard in support of their position.

 11. Neither the Navy nor the SBA officials encouraged TAI or ISN to incur startup costs in anticipation of the award of the contract, nor were these officials authorized to do so.

 13. SOP para. 46(e) sets forth guidelines to assist SBA officials in the exercise of their discretion in deciding whether to retain or release a contract from the 8(a) program. The decision must be reviewed by three levels of SBA officials for a national buy. *fn3" In this case, a review was conducted by officials in the Richmond District, the Philadelphia Region (Region III) and the Central Office in Washington, D.C. The adoption of SOP para. 46(e) on April 27, 1987, was intended to provide policy guidance to program officials in the event that they wished to consider returning a contract to an agency for restricted competitive bidding. SMA's application to return the SNAP-II contract to competitive bidding under SOP para. 46(e) was the first one of its kind received by the Central Office. The situation in question represented the first time that the Central Office acted to review the release of a national buy contract under SOP para. 46(e), which had been adopted only six months earlier. The SMA has introduced evidence of "local buys" that were released prior to the adoption of SOP para. 46(e). The adoption of SOP para. 46(e) was intended to provide general policy guidance for all offices of the SBA in balancing the competing needs of 8(a) companies. Under SOP para. 46(e) the release of a contract from the 8(a) program depends on the size of the company; current contracts with options for the graduating firm; the importance of the contract for the present 8(a) company's stability; and the need of other 8(a) companies for the contract to complete their business plan objectives. However, contracts are not automatically released when 8(a) firms graduate. Paragraph 46(e) merely provides the relevant program officials with discretionary guidelines to consider in taking such action.

 14. On December 9, 1987, the Richmond District Office recommended release of the contract covering SNAP-II requirements so that SMA could bid competitively for the contract. The District Office reviewed each of the four factors listed above. The District Office concluded, inter alia, that denying SMA an opportunity to bid on the contract, by leaving it in the 8(a) program, would adversely impact upon SMA, because the SNAP-II contract represented 60% of its anticipated revenues. In addition, SMA had made substantial financial commitments in anticipation of the award, and anticipated a loss of approximately 400 of its 600 workers if the contract was lost. Lastly, the District concluded that none of its 8(a) firms needed the contract to complete their business plan objectives.

 15. On December 16, 1987, the Philadelphia Regional Administrator joined in the District Office's recommendation to release the SNAP-II contract back to the Navy, so that SMA would be given an opportunity to bid competitively on the contract. The Regional Administrator concluded

 
the mission of the MSB [Minority Small Business] Program as provided in statute, regulation and SOP is best served by this recommendation. Further, leaving contract resolution to the Navy and those qualified disadvantaged firms which would bid in a competitive rather than a sole source environment is also consistent with the best interest of the firms involved and the program objective of developing firms that will be viable in a competitive environment.

 16. As discussed below, in December 1987 the SBA evaluated materials concerning whether the SNAP-II contract was necessary for completion of the ISN and TAI business plans. The plaintiffs were afforded the opportunity to make submissions, and to be heard at a meaningful time and in a meaningful manner.

 17. In mid-December, 1987, SBA requested the Regional Office to elaborate concerning the needs of ISN and TAI for the SNAP-II contract. The Central Office received the additional information ...


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