Generally, the small business Rule of Two requires an agency to set aside contracts for small business, assuming that there are at least two small businesses with competitive prices who will bid on the contract. But does the small business Rule of Two apply to orders under a multiple award contract? In a recent decision, GAO affirmed the answer is no–application of the small business Rule of Two for orders under a multiple-award contract is discretionary.
In ITility, LLC, B-419167 (Dec 23, 2020), GAO reviewed the issuance of a task order by the Department of Homeland Security for program management and information technology support for the Financial Systems Modernization (FSM) office.
The FSM office has a mission to “execute key financial management requirements” and “identifying, implementing, and overseeing modern and compliant financial management systems and business processes across DHS.”
In 2018, DHS had awarded a service-disabled veteran-owned small business set-aside task order to ITility under a DHS indefinite-delivery, indefinite-quantity (IDIQ) contract. Under the task order, ITility performs program and technical support services for DHS travel management programs for the DHS Financial Systems Modernization (FSM) Joint Program Management Office (JPMO).
However, DHS decided it would reorganize the JPMO as “more IT-centric technical support services were needed due to evolving requirements”. And, “ITility’s current task order did not provide sufficient levels of expertise and support capacity to adequately support JPMO’s projected requirements.” In addition, “DHS concluded that several additional labor categories that were not included on ITility’s task order, will be needed[.]”
DHS reviewed six multiple-award IDIQ contracts to potentially meet its identified needs for the JPMO, noting that DHS policy prioritizes “using strategic sourcing contract vehicles.” DHS chose GSA’s Alliant 2 contract “because it believed the contract provided both the depth and breadth of program management and information technology services needed by JPMO, a suitable performance period, and a wide vendor pool with experience in large implementation efforts.”
It could not do a small business set-aside because the Court of Federal Claims had invalidated the Alliant 2 small business contract awards. So, only Alliant 2 large business contract holders could bid on the DHS task order.
ITility alleged that DHS did not properly conduct market research to determine whether the procurement should have been set aside for small business concerns. GAO invited comment from the parties, as well as SBA, on whether DHS “was required to conduct such a set-aside analysis prior to issuing the task order RFQ.”
GAO provided some context for its ruling. GAO noted that it had in the past construed the small business Rule of Two as applicable to any task order delivery order solicitation, but that in 2010 Congress amended the Small Business Act to require rules allowing federal agencies to “set aside orders placed against multiple award contracts for small business concerns” “at their discretion.” Both the FAR and SBA rules echoed the language allowing agencies to have discretion in setting aside orders for small business. In various decisions, GAO had consistently ruled that “set-aside determinations under multiple-award contracts are discretionary, not mandatory.” In keeping with that tradition, GAO reiterated that agencies do not have to use small business set-asides for orders solicited against multiple award contracts.
This decision seems to be at odds with the Court of Federal Claims recent decision (discussed here) that said agencies cannot simply move a requirement to a multiple award contract and get around the Rule of Two. But GAO considered the COFC case and was not persuaded by it, rejecting the parties’ request for GAO to overturn its earlier precedent and “adopt the parties’ position that the grant of discretion in the Jobs Act only provided an exception to the applicable fair opportunity requirements.”
Having what appears to be inconsistent guidance at GAO and COFC is a real headache, but companies considering a Rule of Two challenge should be aware of the apparent divergence between COFC and GAO precedent in deciding where to bring a small business Rule of Two protest.
Questions about this post? Email us or give us a call at 785-200-8919.