OMB Issues Command to Increase Small Business Participation on MACs

The White House has issued a memorandum that calls for specific procedures for Increasing Small Business Participation on Multiple-Award Contracts. To that end, OMB has recommended steps such as increasing small business order set-asides and maximizing small business set-asides across multiple types of contracts. Perhaps most importantly, OMB has directed federal agencies to apply the small business Rule of Two for all orders, which should has the potential of leading to an increase in small business set-asides. Below, we dive into these new recommendations.

The memorandum, issued through the Office of Management and Budget (OMB), refers to a number of other policy documents. One of those is Executive Order 14091, Further Advancing Racial Equity and Support for Underserved Communities Through the Federal Government. That executive order established a government-wide goal of awarding at least 15 percent of federal contract spending to small disadvantaged businesses in FY 2025.

The White House, SBA, and the Federal Acquisition Regulatory Council (the FAR Council), had worked together to come up with solutions to “promote a diverse federal supplier base.” These actions will be the subject of future regulations in the FAR and SBA rules. Here are some of these key actions that the memo encourages.

For Multiple Award Contracts (MACS)

  1. Work with agency small business specialists early. “Agencies should carefully consider total or partial small business set-asides when planning new multiple-award contracts.” Agencies should review set-aside decisions with the the agency small business specialist and the SBA’s Procurement Center Representatives (PCR). While agencies always consider small business set-asides, this recommendation says that agencies must engage both the SBA and the small business specialist at the agency, to ensure small business advocates are part of the set-aside decision. The agency small business specialist should review the decision to not use a small business set-aside.
  2. Use On-Ramps. “Consider on-ramps when developing the acquisition strategy.” This would allow small businesses to be added to MACs on a continuing basis, so that they are not foreclosed from entry just because they did not make the initial cut.
  3. Limit Off-Ramps. Agencies should not remove companies from small business MACs “because of a change to its size status, except where size status changes as a result of a merger or acquisition of the business.” Agencies should not actively look to remove small businesses from awards based on off-ramping, unless there is an acquisition of a business. We have seen some solicitations that have pretty strict off-ramping procedures. The OMB memo instructs agencies not to have such strict procedures for small businesses.

For Orders under MACS

We’ve written extensively on when agencies must set aside orders under MACS. For instance, in one COFC decision, the court held that “[t]he Rule of Two unambiguously applies to ‘any’ ‘acquisition,’ FAR 19.502-2, without any loophole for MAIDIQ task orders.” The court noted, “where the FAR intends to make the Rule of Two entirely inapplicable to the selection of a particular procurement vehicle, the FAR knows how to do so,” and it cited FAR subpart 8.4, which expressly exempts FAR Part 8 FSS procurements from the Rule of Two requirements. The indefinite delivery contract regulations in FAR subpart 16.5, however, do no such thing.

However, GAO has disagreed with the COFC on whether the small business Rule of Two apply to orders under a multiple award contract and said it is discretionary on the part of the agency. GAO noted that it had in the past construed the small business Rule of Two as applicable to any task order delivery order solicitation, but that in 2010 Congress amended the Small Business Act to require rules allowing federal agencies to “set aside orders placed against multiple award contracts for small business concerns” “at their discretion.” Both the FAR and SBA rules echoed the language allowing agencies to have discretion in setting aside orders for small business. In various decisions, GAO had consistently ruled that “set-aside determinations under multiple-award contracts are discretionary, not mandatory.” In keeping with that tradition, GAO reiterated that agencies do not have to use small business set-asides for orders solicited against multiple award contracts.

Perhaps in part to overcome this split in authority, here are the key actions that the memo recommends:

  1. “Apply the rule of two to contract orders, with limited exception.” With limited exceptions for things like urgency, “agencies should set aside orders over the micro-purchase threshold (MPT) for small business contract holders when the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the multiple-award contract that are competitive in terms of market prices, quality, and delivery.” This memo, then, encourages agencies to use small business set-asides for orders, regardless of the split between the COFC and GAO. This should have a positive effect on setting more acquisitions aside for small business.
  2. “Maximize orders to small businesses under the simplified acquisition threshold (SAT) to the maximum extent practicable.” Agencies should review data on what percentage of orders are not set aside and take action on those small-dollar orders.
  3. Make BICs work for small business. “Best-in-class (BIC) contract vehicles are enterprise multiple-award contracts that meet a rigorous set of criteria, including demonstrated use of category and performance management strategies and small business best practices.” Many of them have been used for awards to SDBs and SDVOSBs. Agencies should prioritize small business and use order set-asides in connection with BICs.

This memo shows that the OMB is committed to increasing small business participation. It predicts that new SBA and FAR rules will be coming soon to put these ideas into practice. For now, OMB is relying on voluntary agency effort to carry out these steps. Let’s hope that many agencies follow them, but that new regulations come out soon. Stay tuned to SmallGovCon to see how this develops.

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