GAO: 8(a) Sole-Source Set-Aside Proper Notwithstanding Prior Intent

As a general rule, the SBA is prohibited from accepting a solicitation into the 8(a) Business Development Program if the procuring agency previously expressed publicly a clear intent to award the contract as a small business set-aside.

On its face, this restriction seems clear. In practice, it can be anything but—the inquiry usually focuses on whether the agency’s prior intent was definitive enough to count.

In SKC, LLC, B-415151 (Nov. 20, 2017), GAO provided important clarity about this restriction.

In 2011, SKC was awarded a small-business set-aside contract by the Defense Intelligence Agency, for facility support services for DIA’s Directorate of Logistics Operations Center (“DLOC”). Before SKC’s contract ended in September 2016, DLA notified SKC that because of an anticipated change in acquisition strategy, DLA would issue SKC a bridge contract before recompeting the work. As SKC’s contract expired DLA, issued SKC a non-competitive bridge contract with a one-year base period and a single one-year option.

In early 2017, DLA held industry days with potential contractors to discuss upcoming competitions. At those industry days, DLA forecasted the follow-on DLOC award would be set-aside for small businesses. But DLA gave attendees an important caveat: its acquisition forecasts were tentative, and no final decision regarding the procurements had been made.

A couple of months later, however, DLA asked the SBA to accept the DLOC requirement as an 8(a) sole-source award to IKun, LLC. DLA identified the procurement as a new requirement, valued at over $20 million, which would be fulfilled under one base year and two one-year options. After the SBA accepted the requirement into the 8(a) Program, DLA advised SKC that it would not exercise the option under its bridge contract.

SKC then protested to GAO, challenging the validity of the sole-source award. According to SKC, DLA’s decision to procure the work under the 8(a) Program was contrary to its publicly-stated prior intent to award the contract to a small business.

Under the 8(a) Program’s prior intent restriction, the SBA is prohibited from accepting a procurement for an award as an 8(a) contract when

The procuring activity issued a solicitation for or otherwise expressed publicly a clear intent to award the contract as a small business set-aside [or to HUBZones, SDVOSBs, or WOSBs] prior to offering the requirement to SBA for award as an 8(a) Contract. However, the [SBA’s Associate Administrator/Business Development] may permit the acceptance of the requirement under extraordinary circumstances.

Because DLA told industry day attendees in early 2017 that the procurement might be issued as a small business set-aside, SKC asserted that the SBA and DLA violated this restriction.

GAO disagreed, based largely in part on the SBA’s feedback. That is, in response to the protest, GAO requested the SBA to weigh in on whether DLA had publicly expressed a clear intent to issue the solicitation to small businesses. The SBA said no, because DLA provided multiple disclaimers to industry day attendees that its acquisition plan was not final and was subject to change. Neither was there any pre-solicitation notice, synopsis, or solicitation issued for the work that indicated it would be set-aside for small businesses. In short, the SBA concluded that DLA’s statements were not definitive enough to count as a clear public intent.

Affording the SBA deference to interpret its own regulations, GAO agreed with the SBA’s analysis and denied the protest:

SKC has provided no basis for us to disagree with the SBA’s interpretation that 13 C.F.R. § 124.504(a) does not limit SBA’s ability to accept a procurement into the 8(a) program when a procuring agency does not issue a pre-solicitation notice, synopsis, or solicitation to procure the requirement as a small business set-aside, but simply states that the requirement will be issued as a set-aside as part of a forecast with multiple disclaimers that the information is subject to chain.

This decision provides important clarity to the 8(a) Program’s prior intent restriction. It’s not enough for the agency to tell offerors that a solicitation might be set-aside for small businesses; the agency’s intention must be more definitive.

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Small businesses and 8(a) participants should take note of this decision given its potential impact to both programs. If you have any questions as to how it might impact your business, please give me a call.