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Federal Market Intelligence for Small Business |
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GAO decision hits “Rule of Two”The Government Accountability Office has decided that federal agencies may--or may not--choose to set aside task orders for small businesses under multiple award contracts under the so-called “Rule of Two.” The Rule of Two generally requires agencies to set aside contracts over $150,000 for small businesses if there is a reasonable expectation of receiving bids from at least two qualified small businesses. The recent GAO protest decision appears to reverse that longstanding practice for task orders for multiple-award contracts. The GAO ruled that federal agencies have discretion on whether, or not, to apply the Rule of Two and set aside a task order on multiple-award contracts. “A set-aside was not required,” GAO officials wrote in the Nov. 12 decision (Edmond Scientific Co.). “The issue before us is whether the Army abused its discretion in not reserving this task order for small business participation, and whether the Army was required, under current law and regulations, to base its determination on a Rule of Two analysis,” the GAO wrote. “We conclude that the Rule of Two had no application here, and that the Army’s determination was reasonable,” the GAO decision stated. The GAO disagreed with the Small Business Administration’s position in support of upholding the Rule of Two. The GAO cited language in the Small Business Jobs Act of 2010 and its implementing regulations to justify treating the Rule of Two and set-asides as discretionary in multiple-award contract task orders. “We think it is beyond debate that these regulations, by their plain language, grant discretion to a contracting officer about whether to set aside for small business participation task orders placed under multiple-award contracts,” GAO General Counsel Susan Poling wrote. The decision pertains to a task order issued by the Army’s TRICARE Evaluation and Management Support (TEAMS) contract, awarded in 2008 to 19 companies. Three of the awardees were small businesses. The protest was filed after the Army issued an unrestricted task order in 2014, after deciding not to set aside the task order for small businesses. Steven Koprince, government contracts attorney, called the GAO decision “bad news for small business” in a recent blog entry. He wrote that the GAO’s decision “essentially overturns a 2008 decision (Delex Systems Inc.) in which the GAO held that the rule of two does require agencies to set aside task orders.” But in its new ruling, the GAO said the Delex decision has been superceded by the Small Business Jobs Act and regulations. Even so, Koprince suggests that perhaps Congress did not intend that result. “The GAO’s decision refers several times to the ‘plain language’ of the Small Business Jobs Act and the FAR, and there is no doubt that the plain language of FAR 19.502-4 uses the term ‘discretion’ in describing a contracting officer’s Rule of Two obligation with respect to a task or delivery order solicitation,” Koprince wrote in his blog. At the same time, he suggested Congress might not have intended to overturn the Delex Systems decision “and thereby reduce the use of small business set-asides under multiple-award contracts,” Koprince wrote. “If, in fact, Congress did not intend to overturn Delex Systems, small businesses may wish to push for Congress to clarify its intent,” he added.
More Information: GAO decision: http://www.gao.gov/assets/670/666961.pdf
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