Small Business “Rule Of Two” Doesn’t Apply To GSA Schedule

Agencies are not required to investigate the availability of small business offerors when ordering goods and services off the Federal Supply Schedule, even if multiple small business concerns would be able to compete for the contract.

As the GAO recently held in Walker Development & Trading Group, B-411357 (July 8, 2015), the small business preferences found in the Small Business Act do not apply when an agency uses the FSS.

Walker Development involved a procurement by the Department of Veterans Affairs for heart monitors. Because of an immediate need, the VA decided to procure the heart monitors using the FSS.  The VA investigated available vendors and concluded that LifeWatch Services, Inc. was the only schedule contract holder capable of meeting the VA’s needs. The VA subsequently awarded a task order to LifeWatch.

Walker Development & Trading Group filed a GAO bid protest.  Walker Development alleged that, before using the FSS to procure the heart monitors, the VA was required to conduct market research to determine if the contract should be set aside for small businesses. Walker contended that pursuant to FAR 19.502-2, the VA was required to set aside the contract for small business concerns since the so-called “rule of two” was satisfied, in that there were more than two responsible small businesses likely to bid.

GAO rejected this argument, noting that another regulation, FAR 8.404(a), specifically exempts orders placed against FSS contracts from the market research requirements of the Small Business Act. As GAO explained, “the Small Business Act and its implementing regulations do not impose a requirement on agencies to first evaluate whether a solicitation should be set aside for small businesses before purchasing the goods or services through the FSS program.” The GAO denied Walker Development’s protest.

As Walker Development makes plain, agencies are not required to investigate the feasibility of setting aside procurements for small business concerns on FSS acquisitions. Although agencies are permitted to issue FSS acquisitions as small business set-asides, they are not required to do so. In short, the GSA Schedule is an exception (and a big one) from the ordinary “rule of two.”

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