Rule Of Two: Small Business’s Notification Of Interest Was Too Late

A small business’s expression of interest in a solicitation came too late to affect the agency’s set-aside decision under the so-called “rule of two,” even though there was no indication that the small business knew about the requirement early enough to affect the set-aside decision.

In a recent bid protest decision, the GAO held that an agency was not required to consider a small business’s expression of interest when that expression of interest occurred after the RFQ was released.  Although the GAO may have been correct as a matter of law, the result is still discouraging, because nothing in the GAO’s decision indicated that the small business knew (or should have known) of the requirement before the agency issued the RFQ.

The GAO’s decision in Jacqueline R. Sims, dba JRS Staffing Services, B-409613; B-409613.2 (June 16, 2014) involved a Department of Justice RFQ for parenting program services at the Federal Correctional Institution in Edgefield, South Carolina.

Before issuing the RFQ, the DOJ contracting officer reviewed the SBA Dynamic Small Business Search database, which did not identify any small businesses within South Carolina under the applicable NAICS code that provided parenting instruction or similar instruction.  The contracting officer also reviewed the procurement history and discovered that the last three contracts for the services had been awarded to the same individual, which the DOJ concluded would be the only small business likely to submit a quotation at a fair market price.

Based on its market research, the DOJ released the RFQ as unrestricted.  Three days after the RFQ was released, Jacqueline R. Sims dba JRS Staffing Services notified that contracting officer that it was interested in competing under the RFQ as a small business.  Because JRS is located in Georgia, it had not appeared in the contracting officer’s review of the SBA DSBS database.

After receiving JRS’s notification, the DOJ had reason to believe that at least two eligible small businesses would submit offers at fair market prices.  Nevertheless, the DOJ did not revise or amend the RFQ, which continued to be categorized as unrestricted.

JRS filed a GAO bid protest challenging the terms of the RFQ.  JRS argued, in part, that the DOJ had erred by failing to issue the RFQ as a small business set-aside.

The GAO held that the DOJ had reasonably confined its market research to small businesses located in South Carolina, and reasonably issued the solicitation as unrestricted after determining that only one eligible small business was likely to compete.  The GAO then wrote that the DOJ was not required to switch the solicitation to a small business set-aside after receiving JRS’s notice:

We recognize that JRS, a small business concern located outside South Carolina, notified the contracting officer three days after the solicitation was issued of its interest in competing for this work. Information that first becomes available after issuance of a solicitation does not demonstrate that the contracting officer’s prior determination not to set aside the procurement was unreasonable.  Although it is permissible for a contracting officer to change a determination after a solicitation is issued, nothing in the procurement regulations requires the contracting officer to cancel or amend the solicitation when that official subsequently learns of interested, responsible small businesses, assuming that the contracting officer had conducted a reasonable investigation regarding the possibility of two or more responsible small businesses competing on the procurement. 

The GAO denied JRS’s protest.

As a legal matter, it is difficult to quibble with the GAO’s decision.  Nothing in the FAR or other law requires an agency to revisit its market research or set-aside determination after a solicitation is issued.

However, from a practical perspective, JRS Staffing Services demonstrates the limits of the Rule of Two when it comes to protecting the interests of small businesses.  Nothing in the GAO’s decision indicated that the DOJ’s market research included a RFI or any other public notification of the pending acquisition.  Without such notice, JRS could not have expressed its interest in the RFQ until the RFQ itself hit the street–and by then, it was too late for JRS’s notice to be taken into account in the set-aside analysis.

Perhaps this Catch-22 will be addressed one day by the SBA or FAR Council.  In the meantime, small businesses that are unaware of an acquisition until the solicitation is issued can hope to persuade the procuring agency to revisit an unrestricted designation, but may not have any legal ability to force the agency to do so.

Update 6/22/2013: My friend Guy Timberlake of the American Small Business Coalition has researched the procurement at issue in JRS Staffing Services and concluded that JRS “appears to have more in their favor that not, for knowing about this opportunity in advance.”  Guy also questions whether JRS Staffing Services was appropriately listed in SAM and the SBA’s Dynamic Small Business Search system in the first place–which certainly would have limited its ability to be discovered as part of the DOJ’s market research.  Guy’s post is insightful and well worth a read.  

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