Federal Court: Small Business Set-Aside Threshold “Purposefully Low”

The FAR’s threshold for meeting the so-called “Rule of Two” for small business set-asides is “purposefully low,” according to a recent decision of the U.S. Court of Federal Claims.

In Adams & Associates, Inc. v. The United States, No. 12-731C (2013), the Court rejected a challenge to a small business set-aside, holding in part that a contracting officer need not conduct a thorough responsibility evaluation of prospective small business offerors before issuing a set-aside.

The Adams & Associates case involved a Department of Labor solicitation for the operation of the Shriver Job Corps Center in Massachusetts.  Adams & Associates, Inc. was the incumbent contractor, but no longer qualified as a small business.

After conducting market research, the DOL issued the solicitation as a small business set-aside.  Adams then filed a pre-award bid protest with the Court, arguing that the set-aside designation was improper.

Among its contentions, Adams argued that the DOL had not properly applied the Rule of Two, because the DOL had not thoroughly examined whether prospective small business offerors had the requisite capability, capacity, and past performance to be able to successfully perform the contract at a fair market price.  (Adams also argued that the Workforce Investment Act essentially prohibits small business set-asides for Job Corps procurements, an argument previously rejected by the Court).

The Court wrote that in making a set-aside determination, “the contracting officer need not make affirmative determinations of responsibility.”  Indeed, “it not required or practical at this stage of the procurement process for the contracting officer to conduct a full responsibility determination.”  Rather, the contracting officer only must reasonably expect that likely offerors “will be capable of surviving a future responsibility determination.”

The Court noted that under the FAR, if a procuring agency designates a set-aside, but  subsequently determines that no responsible small business can satisfy the requirements, the agency shall withdraw the set-aside and re-solicit on an unrestricted basis.  The Court continued:

“The Rule of Two is part of a larger framework in the FAR established to benefit small businesses.  All that is required is a reasonable expectation.  The threshold for meeting the criteria of the Rule of Two is purposefully low and is counterbalanced by FAR provisions that provide direction in the event of a failed set-aside.”

The Court denied Adams’ bid protest.

The Court reached the right result in Adams & Associates.  If procuring agencies were required to conduct thorough responsibility determinations before issuing set-asides, the administrative burdens on agencies and small businesses alike would be formidable.  And, because responsibility can change between the time a small business responds to a Request for Information and the time it submits its offer (for example, by teaming with an experienced partner or obtaining a new line of credit), responsibility is better determined after offers are submitted, not at the set-aside stage.

The Court’s position in Adams & Associates is, at least on a policy level, contrary to the GAO’s decision in American Medical Equipment Co., B-407113, B-407113.2 (Nov. 8, 2012), which I criticized for permitting a searching inquiry into experience and capabilities as part of a set-aside decision.  I, for one, am hopeful that the Court’s policy of a “purposefully low” threshold–not the GAO case seeming to permit a much higher threshold–will guide agencies in their set-aside decisions.

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