Before deciding whether to set-aside a solicitation for small businesses under FAR 19.502-2, should the contracting officer first determine whether those small business will be able to provide the needed services while, at the same time, complying with the limitation on subcontracting?

No, according to a recent GAO bid protest decision. Instead, an agency’s determination whether a small business will comply with the limitation on subcontracting should be made as part of its award decision (following the evaluation of proposals), not during its initial set-aside determination.

Under FAR 19.502-2(b), a procurement with an anticipated dollar amount greater than $150,000 must be set-aside for small businesses where there is a reasonable expectation that offers will be received from at least two responsible small businesses and that award will be made at fair market prices. Though orders under FSS contracts (issued under FAR part 8.4) are exempt from these small business programs, a contracting officer nonetheless has discretion to set-aside FSS orders for small businesses.

In InfoReliance Corporation, B-413298 (Sept. 19, 2016), GAO considered a protest challenging the Federal Bureau of Prisons’ decision to set aside an FSS order for cloud computing services to small businesses. The contracting officer’s market research identified at least eight small businesses that were authorized re-sellers of the Amazon Web Services sought under the order.

InfoReliance, a large businesses, challenged the set-aside decision, arguing that no small businesses would be able to perform the solicited services while complying with the limitation on subcontracting. According to InfoReliance, the small businesses were thus not responsible, and the set-aside decision was unreasonable.

GAO disagreed with InfoReliance. It noted that contracting officers have discretion to set-aside FSS orders for small business concerns, and that InfoReliance did not show BOP violated any law or regulation in exercising its discretion under this solicitation.

GAO also denied InfoReliance’s argument that BOP was required to verify each small business’s responsibility before deciding to set-aside the solicitation. Before setting-aside a solicitation, an agency “need only make an informed business judgment that there are small businesses expected to submit offers that are capable of performing.” An agency need not conduct a formal responsibility analysis before setting-aside a procurement.

Neither was BOP required to analyze the offerors’ potential compliance with the limitation on subcontracting before setting-aside the solicitation. GAO bluntly said:

This argument, however, puts the cart before the proverbial horse: an agency’s determination whether a small business concern will comply with a solicitation’s subcontracting limitation is to be made as part of the award decision, and based on the particular quotation submitted.

GAO denied InfoReliance’s protest.

InfoReliance serves as a reminder that, in deciding whether to issue a solicitation as a small business set-aside, an agency is not required to prospectively evaluate offerors’ potential proposals. This makes sense: because the rule of two analysis is conducted before a solicitation is issued, an agency cannot evaluate yet-to-be-submitted proposals for compliance with subcontracting limits. To do so would, in GAO’s words, put the cart before the horse.