The U.S. Court of Federal Claims (COFC) decision in HWI Gear, Inc. v. United States highlights the importance of reviewing a solicitation to determine if the text of Federal Acquisition Regulation (FAR) 52.219-28 is included in it, as well as the risk of engaging in corporate transactions while a proposal to a procuring agency is pending. In this case, the COFC held that an offeror was required to recertify its size status during a procurement, and the agency’s failure to enforce this requirement invalidated the award.
In HWI Gear, Mechanix Wear, Inc. (Mechanix) and HWI Gear, Inc. (HWI) submitted proposals in response to a solicitation set aside for small businesses. After proposal submission but before award, Mechanix informed the procuring agency that it had changed its corporate structure from a corporation to a limited liability company and changed its corporate name, but that all other terms and conditions in its proposal remained unchanged. Mechanix, however, did not inform the agency that its change in corporate structure was the result of a merger with a large business and that Mechanix no longer qualified as a small business under the size standard established for the procurement. The agency ultimately selected Mechanix as the awardee, and HWI filed a bid protest challenging the agency’s evaluation.
The COFC first acknowledged that there is “not ordinarily a requirement for recertification and that size is typically determined at the time that the offer is submitted.” It also agreed with Mechanix and the procuring agency “that the regulations themselves do not contain an independent requirement for an offeror to recertify, nor would FAR 52.219-28 require recertification by reference alone.” However, because the procuring agency quoted FAR 52.219-28 when it stated in its solicitation that “[i]f the Contractor represented that it was a small business concern prior to award of this contract, the Contractor shall rerepresent its size status . . . [w]ithin 30 days after a merger or acquisition,” Mechanix was required to notify the procuring agency that it no longer qualified as a small business after its merger. Further, when the procuring agency was notified of Mechanix’s change in corporate structure, it was responsible for investigating whether Mechanix still qualified as a small business, since the solicitation explicitly required recertification after a change in corporate structure. Because Mechanix no longer qualified as a small business and because the procuring agency failed to determine this independently after Mechanix notified the agency of its change in corporate structure, the COFC invalidated the award.
Takeaways for Government Contractors
Interestingly, under the COFC’s interpretation, a reference to FAR 52.219-28 in a solicitation does not automatically trigger a requirement for an offeror to recertify its size after a change in corporate structure that occurs prior to an award. However, quoting the language of FAR 52.219-28 in a solicitation does trigger this requirement. The HWI Gear decision is currently on appeal, so further clarification of a contractor’s pre-award obligations under FAR 52.219-28 may be forthcoming from the Federal Circuit. This guidance would be helpful considering FAR 52.219-28 is a standard FAR clause that is required to be included in all solicitations exceeding the micro-purchase threshold when the contract will be performed in the United States. The Bass, Berry & Sims government contracts team will continue to update our clients as this matter advances through the courts. If you have any questions about the HWI case, please contact the author.