When Bidding on Public Contracts in Maryland, Contractors Need to Remember That a Certified MBE’s Participation Only Counts Toward the Contract’s MBE Goals if the MBE is Identified as Performing a Commercially Useful Function for the Contract
(Not for the Prime Contractor’s bottom line)
In its final opinion of 2019—In the Appeals of The Sherwin-Williams Company, MSBCA 3099, 3107 & 3110 (2019)[1]—the Maryland State Board of Contract Appeals (“MSBCA” or the “Board”) clarified that the participation of a Maryland Certified Minority Business Enterprise (“MBE”) will only count toward a public contract’s MBE Participation Goals if the MBE is identified in the bid as performing a commercially useful function on that contract, even when the bid documents do not contain any specifically Identified Items of Work for performance by MBEs.
As stated in Maryland’s MBE Policies—which can be found in COMAR 21.11.03—a procurement agency may only count an MBE’s participation in a bid/contract towards that contract’s MBE Goals if the MBE is performing a commercially useful function on that contract[2]. Some solicitations include certain Identified Items of Work that have been identified by the procurement agency as possible items of work that could be performed by a certified MBE. Others, such as the solicitation for this project, do not, which requires bidders to exercise their own judgment when identifying portions of the work intended to be performed by MBEs.
In this matter, the Maryland Department of General Services (“DGS”) issued a solicitation for an indefinite delivery, indefinite quantity (“IDIQ”) contract to provide discounted paint and paint-related products Statewide for three to five years[3]. The Solicitation was broken down into five different regions across Maryland, with DGS intending to award multiple contracts by region and type of product. Of those five regions, only one required MBE participation—Region C[4]—which required MBE participation of three percent (3%) for that portion of the contract.
The Sherwin-Williams Company (“Sherwin-Williams”) submitted a bid covering all five regions and the various products, and on August 9, 2018, it was awarded contracts for four of the five regions. Sherwin-Williams’ bid for Region C was rejected as non-responsive by the contract’s procurement officer (“PO”) because Sherwin-Williams failed to identify that its chosen MBE would be performing a commercially useful function to the contract. On August 24, 2018, Sherwin-Williams filed its first protest (of three[5]) of the PO’s decision (the “First Protest”), which was denied by the PO, and on September 28, 2018, Sherwin-Williams appealed the PO’s Final Decision to the Board (MSBCA No. 3099).
The Board denied Sherwin-Williams’ appeal of the First Protest on the same grounds that Sherwin-Williams’ bid with respect to Region C was initially rejected as non-responsive—while Sherwin-Williams did include an MBE in its bid to satisfy the contract’s MBE Goals, Sherwin-Williams chose to identify the MBE as performing work under the contract according to certain North American Industry Classification (“NAICS”) Codes that were deemed to be not commercially useful functions under this contract[6].
Specifically, Sherwin-Williams identified the scope of work to be performed by its chosen MBE under two NAICS Codes for which the MBE was certified, which Sherwin-Williams described as being “‘paint sales development’ and ‘paint sales management,[7]’” which the Board ultimately determined was unrelated to the core purpose of the contract (i.e., to obtain multiple sources of supply for paints and paint-related products at a discounted price). In a seeming acknowledgement that its MBE’s intended scope of work could not reasonably be considered to be work related to the core purpose of the contract, Sherwin-Williams instead attempted to redefine a “commercially useful function” as “something that increases the value of the business, increases sales, decreases complaints, assists with customer service, and makes a company more valuable to its shareholders,[8]” and then argued that the MBE’s work would “increase [Sherwin-Williams’] sales and provide [the MBE] with new contacts in the field… [9]” thus satisfying Sherwin-Williams’ incorrect definition of a “commercially useful function.”
The Board wholly rejected both Sherwin-Williams’ definition of a “commercially useful function” and its arguments in favor of its MBE designation, stating that “[t]his [Solicitation] was not looking for a marketing representative or for someone to provide technical assistance … [t]his [Solicitation] was a pure supply contract with no service component. DGS was looking for a distributor[10].” The Board continued, unequivocally stating that “[t]he purpose of the MBE Goals is not to increase the sales of the non-MBE prime contractor[11]…” and that “[a]lthough this work may be beneficial to [Sherwin-Williams’] bottom line, and potentially [the MBE’s], it does not satisfy the definition of a commercially useful function as set forth in COMAR 21.11.03.12-1(B) because it is not work requested or required on this paint supply contract.[12]”
So the next time you prepare your bid on a public contract/project in Maryland—whether you are a contractor looking to engage an MBE to satisfy the contract’s MBE Participation Goals, or you are a Maryland Certified MBE looking to work with an upstream contractor—make sure that the scope of work for which the MBE is identified and intended to perform is in fact a commercially useful function that falls within the core focus and scope of the contract.
[1] A copy of the Board’s Opinion is available at: https://msbca.maryland.gov/wp-content/uploads/sites/30/2019/11/The-Sherwin-Williams-Company-3099-3107-3110.pdf
[3] DGS Solicitation No. MDDGS31038816 (Alternate Identification No. 0011T820838), titled “Statewide Contract for Paint and Paint Products,” issued on May 9, 2018 (the “Solicitation”).
[4] Region C was defined as “Central” Maryland, encompassing Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties, plus Baltimore City.
[5] Sherwin-Williams submitted a total of three (3) protests to this award—all of which were denied by the PO and subsequently appealed to the Board by Sherwin-Williams (see MSBCA Nos. 3099, 3107 & 3110). All three appeals were consolidated by the Board in early 2019 and following two non-consecutive days of hearings (on July 31, 2019 and September 11, 2019), the Board issued its Opinion and Order on November 18, 2019, denying all three of Sherwin-Williams’ appeals. This article is only concerned with the Board’s decision as it relates to the appeal of the First Protest.
[6] See In the Appeals of The Sherwin-Williams Company, MSBCA 3099, 3107 & 3110, p. 20 (2019)
[7] Id. at p. 7.
[8] Id. at p. 6.
[9] Id. at p. 20.
[10] Id. at p. 18.
[11] Id. at p. 6, n. 6.
[12] Id. at p. 20.
