Legal Issues: Conflicting Opinions Over GSA Schedule Set-Asides By Nan Kargahi There has been a disagreement between the General Services Administration and the Small Business Administration on whether the Small Business Act applies to acquisitions under the GSA’s Federal Supply Schedule. Procuring agencies have sided with the GSA, believing that they can ignore the requirements regarding set-aside contracts in connection with purchases made under the GSA Schedule. The disregard of the Act by the GSA and procuring agencies has had a significant adverse impact on small businesses. Awards under the GSA Schedule account for over $30 billion in procurement dollars each year. According to the White House Acquisition Advisory Panel, while small businesses hold 79.6% of contracts under the GSA Schedule, they receive only 37.1% of the dollars awarded. However, due to a recent protest concerning this issue, agencies may not be able to rely on this exemption in the future. The protest was filed with the Government Accountability Office earlier this year. It stemmed from a solicitation issued by the Army for the delivery of 50 wardrobe lockers for a target price of $12,500. Although the dollar value was low, the Army did not set aside the solicitation for small businesses. A company called FitNet Purchasing protested the contracting officer’s decision not to reserve the solicitation for small business concerns. (FitNet is owned by the founder of the Fairness in Procurement Alliance, an advocacy coalition representing small businesses.) The Army argued that the small business set-asides and small business programs do not apply when a procuring agency utilizes the GSA Schedule program. The GAO subsequently requested that the SBA and GSA respond to the issues raised by the protestor and the Army. The SBA disagreed with the Army. In its submission to the GAO dated September of 2007, the SBA contended that the set-aside statute “does not exempt GSA Schedule awards or orders issued pursuant to the Schedule contract from the Small Business Act.” The SBA stated that the exemption argument is contrary to the purpose of the small business regulations which is to prevent small businesses from having to compete with large businesses for federal government contracts. Specifically, the SBA explained that the Federal Acquisition Regulations provide that each contract for the purchase of goods and services that has an anticipated value greater than $3,000 but not greater than $100,000 (and in some instances up to $250,000) shall be reserved exclusively for small business concerns if certain conditions are met. 15 U.S.C. § 644. The SBA explained further that there “is nothing in statute or GAO rulings indicating that a GSA Schedule contract should or can take priority over this statutorily mandated small business reservation requirement.” Additionally, nothing in the legislative history exempts the GSA Schedule contracts or orders from the Act. Following the SBA’s response, the Fairness in Procurement Alliance sent a letter to Steven Preston, the Administrator of the SBA, petitioning Mr. Preston to order the GAO to rule on the subject of such exemptions, in the hopes that the GAO would challenge the right of the GSA to exclude small business set-asides from the GSA Schedule. The FPA also petitioned Paul Denett, Administrator of the Office of Federal Procurement Policy, to rescind the exemption. Mr. Denett sent a response to the FPA stating that the OFPP is in the process of reviewing the request. The letter also provided that, in order to complete its analysis, OFPP intends to obtain additional information from agencies. The response is estimated to be delivered by January 14, 2008. Further evidence of the current opposition to the GSA’s position concerning small business set-asides is language contained in a bill passed by the House in October. H.R. 3867 states specifically that “small business set-asides should not be excluded from any acquisitions” under the GSA Schedule (Sec. 602). Although the protest filed by FitNet to the Army solicitation was subsequently dismissed, FitNet has filed a request for reconsideration of the dismissal. Additionally, other protests have been filed involving the same general issues. FitNet and the Alliance believe that agencies are taking the approach of canceling such solicitations while protests are pending in order to prevent the GAO from making any decision on the merits. Clearly, this issue remains a contested one. In this current climate, small businesses may be more successful in challenging GSA Schedule procurements under $100,000 which are not set aside for small businesses (or at least causing the cancellation of the solicitation by the agency). Should the GAO or the OFPP ultimately find that acquisitions under the GSA Schedule are subject to the Act, the policy of exempting small business set-asides from awards under the GSA Schedule may no longer be applied. This would greatly benefit the thousands of small and minority-owned businesses that contract with the federal government. We will continue to track this matter, any actions taken by the GAO, and the findings of the OFPP to be issued in January of 2008. Please contact us if you would like additional information or if you would like to discuss your legal rights. Nan Kargahi is a partner with PilieroMazza PLLC in Washington. Her practice is concentrated on representing companies in a variety of corporate, business and transactional matters, primarily involving mergers, acquisitions, divestitures and joint ventures as well as corporate formation and governance. She can be reached at nkargahi@pilieromazza.com