When issuing task order solicitations under unrestricted multiple award contracts, procuring agencies are not required to apply the so-called “rule of two” and set aside task orders for small businesses.
In a recent bid protest decision, the GAO–over the objections of the SBA–held that agencies “may,” but need not, set aside task orders under multiple-award contracts. The GAO’s decision essentially overturns a 2008 decision in which the GAO held that the rule of two does require agencies to set aside task orders.
The GAO’s decision in Edmond Scientific Company, B-410179, B-410179.2 (Nov. 12, 2014) involved a task order proposal request issued under the Army’s TRICARE Evaluation and Management Support (“TEAMS”) contract. The TEAMS contract is a multiple-award IDIQ contract with a 10-year period of performance. The TEAMS contract was awarded in 2008 to 19 contractors. Three of the awardees were small businesses; the remaining 16 awardees were large businesses.
In 2008, the GAO issued its decision in Delex Systems, Inc., B-400403 (Oct. 8, 2008). In Delex Systems, the GAO held that the rule of two applies to task and delivery order competitions among multiple-award contract holders. As a result, the GAO ruled, a procuring agency “is required to limit the competition for [task or delivery orders] if it concludes that it has a reasonable expectation of receiving offers from at least two responsible small business concerns, and concludes that award can be made at a fair market price.” The SBA supported the GAO’s ruling in Delex Systems, and the decision was widely viewed as an important victory for small businesses.
In 2010, Congress passed the Small Business Jobs Act. A section of the Small Business Jobs Act specified that regulations were to be adopted to “establish guidance under which Federal agencies may, at their discretion” set aside task or delivery orders under multiple-award contracts. In 2011, the FAR was amended to conform with the Small Business Jobs Act. Following the amendment, FAR 19.502-4 states that “contracting officers may, at their discretion” set aside orders under multiple-award contracts. Similar language appears in FAR Part 16.
In 2013, the SBA passed a regulation stating that a contracting officer “may state in a solicitation and resulting multiple-award contract” that task orders will be set aside when the requirements of the rule of two have been met, or that the agency will preserve the right to set aside orders using the rule of two.
In 2014, the Army released the TOPR under the TEAMS multiple-award contract. The TOPR was not restricted to the three small business TEAMS contractors. Edmond Scientific Company, one of the three small awardees, filed a GAO bid protest. Edmond argued, in part, that Army should have used the “rule of two” to determine whether to set aside the task order.
During its evaluation of the protest, the GAO sought the SBA’s comments. The SBA supported Edmond, arguing that the Army was required to apply the rule of two. The SBA and Edmond both appeared to cite Delex Systems to support their position.
The GAO disagreed. The GAO held that it is “beyond debatable” that the FAR provisions adopted in the wake of the Small Business Jobs Act “by their plain language, grant discretion to a contracting officer about whether to set aside for small business participation task orders placed under multiple award contracts.” Similarly, with respect to the SBA’s regulation, “the plain language of the regulation provides that the contracting officer may elect to commit the agency, in its multiple award contracts, to applying the Rule of Two when creating the underlying multiple-award contracts.”
The GAO expressly stated that the holding in Delex Systems is no longer good law. “In our view,” the GAO wrote, “the holding in Delex has been superseded by the passage of the section 1331 of the Small Business Jobs Act . . ..” The GAO continued, “[w]e view this statutory grant of discretion as not requiring the Rule of Two, except when a multiple award contract, or a solicitation for a task order, expressly anticipates the use of the Rule.” The GAO held that the Army had not been required to apply the rule of two to the TOPR, and denied Edmond’s protest.
The Edmond Scientific Company GAO decision is bad news for small business. Under the Delex Systems rule, agencies were required to apply the rule of two when issuing task and delivery order solicitations. No more. Now, the rule of two is discretionary, and contracting officers may–as was the case in Edmond Scientific Company–elect to forego a rule of two analysis.
The GAO’s decision refers several times to the “plain language” of the Small Business Jobs Act and the FAR, and there is no doubt that the plain language of FAR 19.502-4 uses the term “discretion” in describing a contracting officer’s rule of two obligation with respect to a task or delivery order solicitation. But it is fair to ask whether this regulatory discretion represents the will of Congress. Did Congress, in a bill specifically designed to aid small businesses, actually intend to overturn Delex Systems and thereby reduce the use of small business set-asides under multiple-award contracts? Or did Congress merely intend to expand small business contracting by authorizing set-asides in cases where set-asides had not previously been used, such as under the GSA Schedule?
If, in fact, Congress did not intend to overturn Delex Systems, small businesses may wish to push for Congress to clarify its intent. In the meantime, FAR 19.502-4 says what it says, and the GAO’s function is to interpret the law as written. In this case, the law as written is not favorable to small businesses.