Small business set-asides are not required for simplified acquisitions conducted outside the United States and its outlying areas, according to a recent GAO bid protest decision.

In Latvian Connection General Trading and Construction LLC, B-408633 (Sept. 18, 2013), the GAO rejected the protester’s contention–which was backed by the SBA–that simplified acquisitions must be set-aside whenever the “rule of two” is satisfied, notwithstanding the fact that the procurement is outside the United States.

The Latvian Connection GAO bid protest decision involved an Air Force solicitation for armored cable to be used at Thumrait Air Force Base, Oman.  The solicitation was issued pursuant to the FAR’s simplified acquisition procedures, but the Air Force did not set it aside for small businesses.

Latvian Connection General Trading and Construction LLC filed a GAO bid protest. Latvian Connection argued that under the Small Business Act, simplified acquisitions must be reserved for small businesses whenever the so-called “rule of two” is satisfied, that is, where two or more capable small businesses are reasonably likely  to submit offers at fair market prices.

The Air Force disagreed, stating that FAR Part 19, which includes the small business set-aside rules, does not apply to procurements outside of the U.S. The Air Force pointed to FAR 19.000(b), which specifically states that FAR Part 19 “applies only in the United States or its outlying areas” (with one exception, which is not relevant here).

The SBA weighed in on Latvian Connection’s side. The SBA argued that because the Small Business Act is silent as to the geographical reach of the set-aside rules, those rules should be considered to apply worldwide.

The GAO disagreed.  It held that because the Small Business Act is ambiguous on the question of geographical scope, the FAR Council had authority to interpret the statute as limited in scope to the U.S. and its outlying areas.  “[W]e give deference to an agency’s regulatory implementation of a statute, unless the regulation is procedurally defective, arbitrary or capricious in substance, or manifestly contrary to the statute,” the GAO wrote.

The GAO also noted that the SBA’s own regulations say nothing about the geographical reach of the set-aside rules.  The GAO wrote, “[t]he SBA’s view of the statute–which is not reflected in its own implementing regulation despite the existence of the government-wide FAR rule for decades–does not overcome the deference accorded to the FAR.”  The GAO denied Latvian Connection’s protest.

The Latvian Connection GAO bid protest decision is a disappointment for small government contractors doing work overseas.  Now that the issue has been raised, perhaps Congress or the SBA will take action to broaden the geographical scope of the set-aside rules for simplified acquisitions.  For now, though, if it’s not a domestic simplified acquisition procurement, consider FAR Part 19–and its set-aside rules–off the table.