Karthik Consulting, LLC v. United States, Case No. 23-944, a recent Court of Federal Claims case, identifies an essential nuance in determining the eligibility of contractors who have graduated from the Small Business Administration’s 8(a) program to receive new 8(a) task orders under multiple award contracts (MACs).

As a general matter, FAR 19.804-6 provides that an 8(a) contractor may continue to receive 8(a) task awards under a MAC, even if the contractor has graduated from the 8(a) program or is no longer small for the applicable NAICS code. FAR 19.804-6(a) states:

Separate offers and acceptances are not required for individual orders under multiple-award contracts (including the Federal Supply Schedules managed by GSA, multi-agency contracts or Government-wide acquisition contracts, or indefinite-delivery, indefinite-quantity (IDIQ) contracts) that have been set aside for exclusive competition among 8(a) contractors, and the individual order is to be competed among all 8(a) contract holders. SBA’s acceptance of the original contract is valid for the term of the contract. Offers and acceptances are required for individual orders under multiple-award contracts that have not been set aside for exclusive competition among 8(a) contractors. (emphasis in original)

Karthik Consulting, LLC found that this rule of continuing eligibility does not apply to 8(a) task order awards issued under MACs when the competition to be awarded the underlying MAC was not set aside for exclusive competition among 8(a) contractors. Instead, if a contractor receives a MAC that was not set aside exclusively for 8(a) contractors, that contractor can receive an 8(a) task order award under that MAC (either sole source or competitive) only if the contractor is eligible for 8(a) contracts at the time of the task order award. If that contractor graduated from the 8(a) program in the period of the time between award of the MAC and award of the 8(a) task order, the contractor will not be eligible to receive the 8(a) task order.

In Karthik Consulting, LLC, the plaintiff had a seat on the General Services Administration (GSA) HACS contract vehicle. The HACS contract vehicle was not set aside for 8(a) contractors. Karthik Consulting was an eligible 8(a) contractor when it was awarded a seat on the HACS contract vehicle, but it later graduated from the 8(a) program in 2018.

In 2022, the SBA accepted into the 8(a) program a competitive 8(a) task order procurement under the HACS contract vehicle from the United States Citizenship and Immigration Services (USCIS) for cybersecurity services. Karthik Consulting submitted a proposal in response to that procurement and was identified as the prospective awardee by USCIS.

USCIS’s solicitation stated that the 8(a) eligibility of offerors would be determined at the time of offer:

The Quoter shall represent its 8(a) size and socioeconomic status at the time of their quote submission. The [Contracting Officer (“CO”)] has the authority under 13 CFR 121.404(g)(3)(v) to request 8(a) size standard to be certified at the order level. This is being done to ensure the agency receives the 8(a) credit for this task order. (emphasis in original)

…

The government intends to award one (1) task order to one (1) GSA HACS MAS SIN 54151 8(a) Quoter. Prior to award, the Government [CO] will conduct a Dynamic Small Business Search (DSBS), pre-award check to verify the presumptive awardee’s current 8(a) status. The purpose of this pre-award check [is] to validate the presumptive awardee’s current 8(a) status as a part of the RFQ compliance review only and not to make HACS MAS schedule holders ineligible for award. This includes the [CO’s] assessment on the need to refer a joint venture quoter to the Small Business Administration for size or socioeconomic status determination in the case when DSBS validation is not possible due to data integration delays. 8(a) participants must comply with [Federal Acquisition Regulation (“FAR”)] 19.8 prior to the Government making an award.

Prior to awarding the contract to Karthik Consulting, USCIS contacted the SBA to determine if Karthik Consulting was eligible for the 8(a) task order award. The SBA determined that Karthik Consulting was not eligible, because it had graduated from the 8(a) program prior to submitting an offer in response to the competitive 8(a) task order procurement. USCIS then awarded the contract to the next highest-rated bidder. Karthik Consulting protested USCIS’s decision to the Court of Federal Claims.

Karthik Consulting’s argument was that under FAR 19.804-6, the company only needed to be an eligible 8(a) contractor at the time it was awarded the HACS contract vehicle, and that Karthik Consulting’s eligibility for 8(a) contracts would apply for the life of the HACS contract vehicle, regardless of whether Karthik Consulting subsequently graduated from the 8(a) program:

Karthik argues that “[i]n the context of competitive 8(a) set-aside task order awards under MAS [Indefinite-Delivery, Indefinite Quantity (“IDIQ”] contracts, FAR 19.804-6(d) & (e) provide a safe harbor for companies that obtain their seat on the contract as an 8(a) awardee, and then graduate from or exit the 8(a) program during the base period of contract performance.” [ECF 23-1] at 27. Karthik asserts that “[s]uch companies are given the continued right to compete for and receive 8(a) task order awards . . . even where the task order awardee has graduated from the 8(a) program.” Id. Thus, Karthik contends that the DHS acted irrationally and inconsistently with the applicable regulations when it “adopted SBA’s incorrect and unsupported assertion that Karthik’s status as an 8(a) graduate rendered Karthik ineligible for the task order award.” Id. at 29. Karthik’s argument does not comport with a plain reading of FAR 19.804-6.

The Court of Federal Claims rejected the protest, finding that Karthik Consulting’s “safe harbor” argument ignored FAR 19.804-6(a), which provides that eligibility for an 8(a) contract in the context of a multiple award contract that is not set aside for 8(a) entities will be determined at the time of award of the task order:

Karthik’s argument that FAR 19.804-6(d) and (e) provide it a safe harbor ignores the clause at the end of subsection (a). Under subsection (a), separate offers and acceptances are not required for individual orders under multiple-award contracts that have been set aside for exclusive competition among 8(a) contractors. However, if the multiple award contract is, like the HACS MAS contract, not an exclusive 8(a) set-aside, offers and acceptances [by the SBA] are required for individual task orders.

Interpreting the regulation as establishing a safe harbor for multiple-award contracts not set aside for 8(a) contractors would render subsection (a) superfluous because those contracts require a separate SBA offer and acceptance for task orders. FAR 19.804-6(a) (“Offers and acceptances are required for individual orders under multiple-award contracts that have not been set aside for exclusive competition among 8(a) contractors.”) (emphasis added). Although 13 subsection (d) permits former 8(a) contractors to accept new orders under the contract, it applies only where the multiple-award contract, not the task order contract, was set aside for 8(a) contractors. In exclusive 8(a) set aside multiple-award contracts, the SBA’s acceptance of the contract “is valid for the term of the contract.” FAR 19.804-6(a). Multiple-award contracts that are not exclusively set aside for 8(a) contractors do not enjoy that acceptance. Thus, a plain reading of FAR 19.804-6(d) does not provide a safe harbor to Karthik. See Roberto v. Dep’t of Navy, 440 F.3d 1341, 1350 (Fed. Cir. 2006) (“When construing a regulation or statute, it is appropriate first to examine the regulatory language itself to determine its plain meaning.”).

In this case, because the HACS MAS contract was not set aside as an exclusive 8(a) vehicle—a fact Karthik does not appear to dispute—the DHS was required to submit a separate offer to the SBA for the individual task order and to obtain a separate acceptance from the SBA, and Karthik was not entitled to accept new orders under the HACS MAS contract pursuant to FAR 19.804-6(d). Moreover, because the resulting Solicitation required that offerors be current 8(a) contractors on the date they submitted their offers, AR 146, 150, the DHS’s determination that Karthik was ineligible to compete for the task order on January 23, 2023, since it graduated from the 8(a) program in 2018, was appropriate. (all bold and underlined emphases added)

The Federal Court of Claims also rejected Karthik Consulting’s argument that it was eligible for award of the task order under 13 C.F.R. § 124.521(e)(1). With regard to that regulation, the court explained that:

when a business concern qualifies as an 8(a) participant at the time of initial offer under a multiple award contract, it is eligible to compete for individual task orders under the multiple award contract and retains its 8(a) status throughout the life of the contract vehicle unless the CO asks for a new 8(a) determination in connection with that task order. That is exactly what happened in this case. The DHS CO requested that the SBA perform a new 8(a) eligibility determination to determine Karthik’s 8(a) status at the time of initial task order quote submission. This conduct was consistent with the Solicitation terms and the applicable regulations. (emphasis added)

Karthik Consulting, LLC is a straightforward application of FAR 19.804-6 and 13 C.F.R. § 124.521, but provides a helpful reminder of a critical nuance:

• 8(a) contractors that receive a seat on a MAC when the competition to be awarded the underlying MAC was set aside 8(a) contractors will generally be eligible to receive 8(a) task orders under that MAC for the life of the MAC, regardless of whether the contractor subsequently graduates from the 8(a) program; and
• An 8(a) contractor that receives a seat on a MAC that was open to non-8(a) contractors may have to be eligible for 8(a) task awards under that MAC at the time it submits an offer (including price) for an 8(a) task order under that MAC.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.