The Injunction:

Fay Communications, Inc. versus
U.S. Small Business Administration
Original Motion for Preliminary Injunction

Original motion for a preliminary injunction filed Sept. 24, 1987: United States District Court for the District of Columbia Fay Communications, Inc., Plaintiff, v. James Abdnor, Administrator, Small Business Administration and UNITED STATES OF AMERICA, Defendants. Civil Action No. 87-2494-LFO

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The memorandum, filed by Judge Oberdorfer on Sept. 25, 1987:

In re: Fay Communications, Inc., Plaintiff
v.
James Abdnor, Administrator, Small Business Administration,
and
United States of America, Defendants.
Civil Action No. 87-2494-LFO

This Memorandum accompanies an Order filed on September 24, 1987. Plaintiff, Fay Communications, Inc. ('FAY"), is a small corporation organized under the laws of the District of Columbia, with its principal place of business in Arlington, Virginia. FAY is engaged in the business of audio-visual productions and related services for government agencies and private industry, and has provided such services to the Federal Emergency Management Agency ("FEMA") since 1984 under various contracts and subcontracts. Defendant, James Abdnor, is administrator of the Small Business Administration ("SBA") and is sued in his official capacity.

          Plaintiff seeks a preliminary injunction barring defendant SBA from accepting a procurement for its Section 8(a) set-aside program for minority-owned businesses and awarding an 8(a) contract for FY 1988 to Technical Resources, Inc. The FY 1988 contract concerns the performance of various services for FEMA's Emergency Education Network ("EENET"), a satellite-distributed video network through which FEMA provides emergency management training programs for state and local officials and other emergency managers.

          In FY 1986, Technical Resources, Inc. ("TRI") provided the television producer, moderator, and other services for the FEMA EENET program pursuant to a sole source award under SBA's Section 8(a) set-aside program. During that same year, FAY provided substantial production services for the EENET program under two subcontracts with TRI, totaling $69,870. Plaintiff's Memorandum of Points and Authorities in Support of its Motion for a Temporary Restraining Order and Motion for a Preliminary Injunction ("Plaintiff's Memorandum") at 5-7.

          In FY 1987, TRI provided production support services for the EENET videoconferences under a sole source award under Section 8(a) in the amount of $338,592.00. Defendant's Opposition to Plaintiff's Motion for Preliminary Injunction ("Defendant's Opposition"), Exhibit 10. In that same year, FAY was awarded a communications network contract to provide broadcast and transmission elements of the EENET program. Originally $174,984.00, FAY's contract was modified to $183,768.41 on August 4, 1987. Plaintiff's Memorandum at 4.

For FY 1988, SBA decided to set aside a contract for teleconference services under Section 8(a) to be awarded to TRI. It is this contract award that plaintiff seeks to enjoin. Plaintiff contends that such an award by SBA would be arbitrary, capricious, and abuse of discretion, and in excess of statutory authority because the SBA has not conducted a study determining whether plaintiff would be adversely affected by the award to TRI. Plaintiff argues that such an impact study is required under SBA regulations, 13 CFR 124.301 (b) (8) (iv). Alternatively, plaintiff contends that the FY 1988 contract should be open to competitive bidding because there is a "reasonable probability" that TRI could compete successfully, 13 CFR 124.301 (b) (8) (iii).

          The parties agreed in open court on September 23, 1987 to submit this case on the merits on the basis of the papers filed and arguments made in support of and in opposition to the motion for preliminary injunction.

Jurisdiction

          Plaintiff contends that it has standing to bring this suit pursuant to the Administrative Procedure Act, 5 USC 702, and that the Small Business Act does not preclude judicial review of the challenged action. Plaintiff's Memorandum at 12. Section 634 (b) (1) of the Small Business Act provides, in pertinent part, that:

In the performance of, and with respect to, the functions, powers, and duties vested in him by this chapter the Administrator may --

(1) sue and be sued ... in any United States district court, and jurisdiction is conferred upon such district court to determine such controversies without regard to the amount in controversy; but no attachment, injunction, garnishment, or other similar process ... shall be issued against the Administrator or his property.

          15 USC 634 (b) (1). Defendant argues that the language precluding injunctive relief against the SBA Administrator does not apply when the Administrator acts beyond the scope of his authority. See Plaintiff's Memorandum at 13-14; Plaintiff's Reply to Defendant's Opposition to Motion for Preliminary Injunction ("Plaintiff's Reply") at 2-3. Defendant acknowledges that the Court of Appeals in this Circuit has read 634 (b) (1) as permitting injunctive relief where the Administrator has exceeded the scope of his authority. See Defendant's Opposition at 4 (citing Valley Forge Flag Co. v. Kleppe, 506 F.2d 243 (DC Cir. 1974)). Nonetheless, defendant argues that, even under Valley Forge, 634 (b) (1) precludes injunctive relief in this case because the SBA has not exceeded its statutory authority by setting aside the contract at issue here. Defendant's Opposition at 4.

For the reasons stated below, the decision of the SBA to award the FY 1988 EENET contract to TRI without competitive bidding or adequate reasons for not opening the contract for competitive bidding is arbitrary and capricious and inconsistent with SBA regulations. Under Valley Forge, the Court therefore has jurisdiction to provide injunctive relief.

The Merits

          Plaintiff argues that the SBA acted arbitrarily and capriciously, exceeded its statutory authority and abused its discretion when it refused to determine the adverse impact of its proposed Section 8(a) set-aside upon FAY. See Plaintiff's Memorandum at 17-22; Plaintiff's Reply at 3-12. It is plaintiff's position that such an impact study is required under SBA regulations, 13 CFR 124.301 (b) (8) (iv). Those regulations provide that:

SBA will not accept for 8(a) award proposed procurements not previously in the section 8(a) program if any of the following circumstances exist:

(IV) SAB (sic) has made a written determination that acceptance of the procurement for an 8(a) award would have an adverse impact on other small business programs or individual small business, whether or not the affected small business, is in the section 8(a) program.

          13 CFR 124.301 (b) (8) (iv). Plaintiff contends that if an impact study had been conducted by SBA, the results would have established that FAY would suffer substantial harm if the FY 1988 FEMA EENET procurement was set aside for an 8(a) award, and that SBA should therefore not have accepted the procurement for the 8(a) program. Plaintiff's Memorandum at 20.

Defendant responds that the SBA acted reasonably when it determined that an adverse impact statement was not required in this case because the FY 1988 proposed contract that was substantially different from any contract currently performed by a small business outside the 8(a) program. Defendant's opposition at 8. This determination was, defendant contends, consistent with SBA Standard Operating Procedures, which provide that "[i]mpact determinations are not required when there is no incumbent small business." See SOP 80 05 (para.) 46c, Exhibit 2 attached to Defendant's Opposition.

          In support of its determination, defendant submits the declaration of Melvyn C. Goodman, Business Opportunity Specialist for the SBA ("Goodman Declaration"), who states that he compared plaintiff FAY's 1987 FEMA contract with the proposed 1988 FEMA contract and determined that the work FAY performed in the 1987 contract was only a small portion of the work involved in the proposed 1988 contract. Goodman Declaration (para.) 13. On this basis, he concurred in FEMA's assessment that the proposed 1988 contract was indeed a "new procurement." He also concluded that "[s]ince it is a new procurement, which has never been procured by FEMA in the past, Fay cannot be considered the incumbent contractor and no impact assessment need be made as required by the SBA regulations." Id. Defendant also provides the documents relied on by Mr. Goodman and other SBA officials in reaching the decision that the scope of work in FAY's 1987 contract differed substantially from that in the proposed 1988 contract. See Exhibits 11 and 12 attached to the Goodman Declaration.

          Plaintiff replies that "[i]n this case there is no rational relationship between the facts presented to SBA and relied on by SBA and the SBA's decision not to conduct an impact study." Plaintiff's replay at 4. In plaintiff's view, the evidence before SBA indicates that FEMA simply combined two existing procurements into one -- not that the 1988 procurement is in any sense a new procurement. Id. at 5-8. Plaintiff argues that the evidence before Mr. Goodman (and the other SBA officials who reviews his decision) "shows that the 1988 proposed procurement is a combination of Fay Communications' 1987 communications network contract and TRI's 1987 production services contract." Id. at 8.

          Defendant stresses that the standard of review of an agency contracting decision is a narrow one, and that a procurement decision should not be overturned "unless the aggrieved bidder demonstrates that there was no rational basis for the agency's decision." M. Steinthal & Co. V. Seamans, 455 F.2d 1289, 1301 (D.C. Cir. 1971). Defendant argues that the SBA acted reasonably when it determined that no impact statement was required and that the 1988 FEMA contract could be awarded to TRI under the Section 8(a) program. As defendant expressed it: "Clearly, it is not irrational to find that a contract which differs substantially in its scope of work from any previous contract is a new contract without an incumbent contractor." Defendant's Opposition at 9.

On the basis of the record before the Court, defendant has established that SBA had a rational basis for deciding that the FY 1988 EENET contract was a new procurement and that an impact study was not required. The agency's decision on that point should not be disturbed. M. Steinthal & Co., supra.

{{Editor's Note:  This is a personal observation by Tim Fay on 11/11/97, and is not part of the Judge's Memorandum.   Mr. Fay states "The two statements of work (SOW) consisted of two to three typewritten pages: (a) The SOW under which FAY had performed two or more preceding year's work; and (b) the SOW for the subject set-aside. When held up to the light, one on top of the other, the two SOWs registered perfectly with the exception of one very short paragraph. The two SOWs were, in fact, substantially identical, to the point of being ver batim identical, with the exception of the one short paragraph."  Mr. Fay retains copies of both SOWs in his files for reference. He states "We showed this to the Judge, but to no avail."}}   Original text of Judge's Memorandum resumes...

          Plaintiff argues in the alternative that the SBA's decision to award the 1988 contract to TRI under Section 8(a) is arbitrary, capricious, and unreasonable because the contract should have been subject to competitive bidding pursuant to 13 CFR 124.301 (b) (8) (iii). That regulation provides that procurements not previously in the Section 8(a) program will not be set aside under the 8(a) program if:

There is a reasonable probability that a small disadvantaged concern, whether or not a section 8(a) concern, can successfully compete for the contract under conventional competitive procedures.

          13 CFR 124.301(b) (8) (iii). Plaintiff argues that, based on TRI's performance of its FY 1987 production contract with FEMA, TRI is now qualified to do production work, and that there is thus a "reasonable probability" that TRI could compete successfully for the 1988 contract. Plaintiff's Memorandum at 23. Plaintiff contents further that there were no facts before the SBA at the time the decision was made to set aside the FY 1988 award that supported the SBA's conclusion that there was not a "reasonable probability" that TRI could compete successfully for the contract. Plaintiff's reply at 13. Plaintiff states that defendant's affidavits prepared for the purpose of litigation are simply post hoc rationalizations which cannot be used to bolster an incomplete record on this point. Id. In oral argument, plaintiff stressed, for example, that there is no evidence in the record that Mr. Goodman considered TRI's performance in carrying out its 1986 and 1987 contracts in assessing its ability to compete for the 1988 contract.

Defendant responds that Mr. Goodman, the responsible SBA official, made a reasonable determination, based on his knowledge of TRI's lack of experience in competing for procurements of this kind, that TRI could not reasonably be expected to win the 1988 contract through competitive bidding. Defendant's opposition at 10. When asked for support in the record for Mr. Goodman's determination, defendant relied exclusively on paragraph 14 of the affidavit of Mr. Goodman, which states:

Based upon my familiarity with TRI as a 8(a) contractor, I did not believe that it has the corporate capability to win this procurement competitively. TRI has never competed for a procurement in video conferencing this area (sic) and therefore the possibility of it winning an award competitively is remote. TRI had only a very few procurements of this kind with FEMA in its 8(a) history. SBA determined that this contract would assist TRI in its development toward competitive viability in the spirit of the goals of the 8(a) program.

          Goodman Declaration at (para.) 14. At oral argument, defendant stressed that the Court could infer from the record that Mr. Goodman, as Business Opportunity Specialist for the SBA, was familiar with TRI's prior contracts with FEMA under the Section 8(a) program. Based on this familiarity, Goodman believed that TRI did not have the bidding experience to compete effectively for the 1988 contract.

          The agency's decision that the FY 1988 procurement should not be submitted for competitive bidding should not be overturned unless there was no reasonable basis for the agency's decision. M. Steinthal & Co., 455 F.2d at 1301. In this case, however, there is not sufficient support in the administrative record to establish a rational basis for SBA's decision. The only discussion in the record of TRI's prospects of competing for the 1988 contract is the statement in Mr. Goodman's affidavit, prepared for this litigation, stating that because TRI had not competed for video conference contracts in the past, it was unlikely to compete successfully for the 1988 FEMA contract.

Mr. Goodman's expression of doubts about TRI's "corporate capability" is not explained in a meaningful way sufficient to permit either administrative or judicial review. Nor is there any discussion in the record of the quality of TRI's performance in the past, or any elaboration of why it had not gained sufficient experience through performing its 1986 and 1987 contracts with FEMA to have a "reasonable probability" of winning the 1988 contract competitively. Nor is there any indication, in or out of the record, that Mr. Goodman, or anyone else at SBA, considered the possibility that TRI might, at a reasonable cost, engage the services of a lawyer or some other government contracts expert and thereby overcome any defect in its "corporate capability" required to bid effectively for the 1988 contract.

The Injunction

          Plaintiff claims that is has met its burden of showing threat of irreparable harm, i.e. that damages would not afford an adequate remedy. Plaintiff claims that if the SBA is permitted to award the 1988 contract to TRI, "plaintiff's opportunity to compete on a procurement which has been its lifeblood will be extinguished" and plaintiff "will suffer irreparable harm due to the loss of revenues." Plaintiff's Memorandum at 24. Plaintiff also argues that it has no adequate remedy at law since a disappointed bidder may not recover anticipatory profits in the Court of Claims, but is limited to recovery of costs involved in bid preparation, which are not applicable in this case. Id. at 24-25.

          Defendant responds that there is no assurance that the contract would be awarded to plaintiff under a competitive procurement, especially in view of the scope of the 1988 proposed contract, and that any injury to the plaintiff in the absence of an injunction is highly speculative. Defendant's Opposition at 10.

{{Editor's Note:  Not part of the Judge's Memorandum.  Mr. Fay observes in retrospect on 11/11/97 "Our point throughout all of this was to be permitted the opportunity to bid competitively, fairly, on a level playing field, regardless of race!  Defendant's point is irrelevant. We were not asking for a "gift" -- We were demanding the opportunity to bid competitively!"}}  Judge's Memorandum resumes...

This is not a situation where a bidder seeks an opportunity for new business. Plaintiff has enjoyed a business relationship with FEMA for several years which has been a significant share of its relatively small business. Discontinuing that business by erroneous denial of an opportunity to bid is, in the circumstances, irreparable injury.

          Plaintiff contends that injunctive relief would cause no harm to interested parties or to the public. Plaintiff argues that the EENET videoconferences for the coming year are not due to begin before December 1987 and that FEMA's schedule will not be unduly delayed if an injunction is granted. Plaintiff's Reply at 14-15; Plaintiff's Memorandum at 25. Plaintiff also maintains that the public interest would be served by an injunction which, in plaintiff's view, is needed to ensure that the SBA follows its own regulations in this procurement matter. Plaintiff's Memorandum at 26.

          Defendant argues, in reply, that FEMA's videoconference program schedule will be interrupted if the SBA is enjoined from awarding the 1988 contract to TRI and if a new procurement must be initiated. Defendant's Opposition at 10-11. Defendant indicates that FEMA's first EENET videoconference is set for December 1987, with others to follow on a tight schedule. Declaration of Bernard B. Marshall, dated September 22, 1987. In defendant's view, "it would not be in the interests of FEMA or the public interest to delay and disrupt the training of emergency personnel throughout the country." Defendant's Opposition at 11.

          The answer to defendant's argument is that the Order filed on September 24, 1987 does not necessarily require a new procurement. It may well be that defendant can perfect this procurement by a fuller explanation of its rationale. In any event, defendant has made no showing that if it now competed this procurement, it could not complete a competition and award a contract in time to meet its schedule, for example, a mid-October contract award date identified in the Declaration of Bernard B. Marshall.

          Nor does defendant quantify in any meaningful way the added cost or other consequences of any delay in the awarding of the contract required by its irregular procedure in awarding the procurement to TRI without competition or adequate reasons for failing to compete. The set-aside requirements of the SBA and the particular mission of FEMA obviously serve an important public interest. But an inadequately justified set-aside does not, in the circumstances here, outweigh the larger public interest in competition for government contracts and in the integrity of the process of procurement and SBA set-asides.

Accordingly, an Order filed September 24, 1987 enjoins defendant from awarding the FY 1988 FEMA EENET contract to TRI, without prejudice to either a renewed award on the basis of adequate justification for a set-aside, or after competitive bidding. (signed) Louis Oberdorfer, U.S. District Judge, Sept. 25, 1987

Discovery Documents:  The Smoking Gun(s)!

          These documents were provided by the SBA during "discovery", and they clearly illustrate just how easy it was for an "historically disadvantaged firm" to obtain a "gift" of a contract.  Remember, the law stated that the "disadvantaged firm" had to be able to prove they were not competent to perform the work and/or were not competent to win a competitive bid in order for this provision of the law to be used!

	Mr. Lee's handwritten note to SBA.
	Mr. Lee's draft letter for signature by SBA.
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