Avoid Costly Mistakes Protesting CICA Small Business Set Aside Decisions and SBA Rule of Two

If you are considering protesting agencies’ small business set asides and their application of the SBA Rule of Two small business rules at GAO or Court of Federal Claims, you should be aware that this can be a very tricky undertaking.

Many Protesting CICA small business Rule of Two Set Aside Casesgovernment contractors have taken this route and found that their bid protest efforts simply fell by the wayside due to improper arguments.

When protesting under the CICA, the SBA Rule of Two has a broad impact, but it depends on how you argue your case. The decision of whether to implement a small business set aside may be based on several reasons such as: Prior procurement history; Recommendations of appropriate agency business specialist; and Market surveys that include responses to sources sought announcements.

How Do Court Assess the Government’s Decision?

Pursuant to 28 Usc 1491(b)(4), the Court reviews the contracting officer’s analysis to determine whether it was arbitrary or capricious, which requires only that the action be supported by a rational basis.  5 USC 706. “A contracting officer’s determination under FAR 19.502-2 ‘concerns a matter of business judgment within the contracting officer’s discretion that . . . will not [be] disturb[ed] absent a showing that it was unreasonable.’” Global Computer Enters., Inc. v. United States, 88 Fed. Cl. 350, 445 (2009) (alteration in original) (quoting In re Quality Hotel Westshore, B-290046, 2002 WL 1162918, at *2 (Comp. Gen. May 31, 2002)).

Government contractors must show that  there was no rational connection between the facts and the decision made. MCS Mgmt., Inc. v. United States, 48 Fed. Cl. 506, 516 (2000). This a tough undertaking because companies mistakenly argue what essentially should be the best decision for the government to make.  This can be a costly mistake because the legal standard is not to secure a perfect decision. Instead, the rational basis test is a very low threshold. Courts are not in the business of substituting business judgment decisions of the contracting officer.  The Rule of Two does not mandate any particular method for assessing the availability of small-business bidders.

FAR 19.5 Set-Asides for Small Business

19.501 — General.

(a) The purpose of small business set-asides is to award certain acquisitions exclusively to small business concerns. A “set-aside for small business” is the reserving of an acquisition exclusively for participation by small business concerns. A small business set-aside may be open to all small businesses. A small business set-aside of a single acquisition or a class of acquisitions may be total or partial.

(b) The determination to make a small business set-aside may be unilateral or joint. A unilateral determination is one that is made by the contracting officer. A joint determination is one that is recommended by the Small Business Administration (SBA) procurement center representative (or, if a procurement center representative is not assigned, see 19.402(a)) and concurred in by the contracting officer.

(c) For acquisitions exceeding the simplified acquisition threshold, the requirement to set aside an acquisition for HUBZone small business concerns (see 19.1305) takes priority over the requirement to set aside the acquisition for small business concerns.

(d) The small business reservation and set-asides requirements at 19.502-2 do not preclude award of a contract to a service-disabled veteran-owned small business concern under Subpart 19.14

(e) The contracting officer shall review acquisitions to determine if they can be set aside for small business, giving consideration to the recommendations of agency personnel having cognizance of the agency’s small business programs. The contracting officer shall document why a small business set-aside is inappropriate when an acquisition is not set aside for small business, unless a HUBZone or service-disabled veteran-owned small business set-aside or HUBZone or service-disabled veteran-owned small business sole source award is anticipated. If the acquisition is set aside for small business based on this review, it is a unilateral set-aside by the contracting officer. Agencies may establish threshold levels for this review depending upon their needs.

(f) At the request of an SBA procurement center representative (or, if a procurement center representative is not assigned, see 19.402(a)) the contracting officer shall make available for review at the contracting office (to the extent of the SBA representative’s security clearance) all proposed acquisitions in excess of the micro-purchase threshold that have not been unilaterally set aside for small business.

(g) To the extent practicable, unilateral determinations initiated by a contracting officer shall be used as the basis for small business set-asides rather than joint determinations by an SBA procurement center representative and a contracting officer.

(h) All solicitations involving set-asides must specify the applicable small business size standard and NAICS code (see 19.303).

(i) Except as authorized by law, a contract may not be awarded as a result of a small business set-aside if the cost to the awarding agency exceeds the fair market price.

Government’s Small Business Set Aside Decision Does Not Have to be Perfect

 When the government decides to buy through a small business set aside, the contracting agency does not have to get into actual responsibility determinations.

Instead, the agency only has to make a reasonably informed decision as to whether there is a reasonable expectation of receiving acceptably priced bids from two or more small businesses that can perform the contract. See Ceradyne, Inc., B-402281, Feb. 17, 2010, 2010 CPD ¶ 70 at 4.

Conversely, higher level courts tend to focus on the expressed statutory language – focusing on the number expectation and fair market price elements in full and open competitionSee Dynamic Educ. Sys., 109 Fed. Cl. at 327 (“it is not required or practical at this [set-aside] stage . . . for the contracting officer to conduct a full responsibility evaluation”); see also Adams, 2014 WL 274507.  

The small business Rule of Two set aside regulations only requires that the contracting officer have a “reasonable expectation” that at least two responsible small businesses will be able to make offers at fair market prices.

When you are protesting the Rule of Two decision, you simply do not want to attack the contracting officer / government’s business decision. You will more than likely lose the bid protest.

  • You want to look at the market research and information that the government relied upon and decided whether the decision is supported by the procurement history, market research including sources sought.
  • Look at the NAICS Code used for the procurement.
  • You have to show that the contracting officer abused her discretion given the facts.
  • GAO or COFC only looks to see if the information relied upon by the contracting officer was adequate to support the set-aside decision.

Protesting CICA & Small Business Set Aside Decision – Analysis

By protesting your case under the Competition in Contracting Act (“CICA”), you first have to show that the contracting officer failed to conduct a proper small business Rule of Two Set Aside analysis.

Courts use  5 USC 706(2)(A) (2012), which provides that “the reviewing court shall . . . hold unlawful and set aside agency action, findings, and conclusions found to be  arbitrary, capricious, an abuse of discretion, or otherwise not by law.”

Under the SBA Rule of Two set aside analysis, protestors have to show that:

  • The procurement official’s decision lacked a rational basis; or
  • The procurement procedure involved a violation of regulation or procedure.

The Small Business Set-Aside and SBA Rule of Two provide that the CO shall set aside acquisitions over $150,000 if there is a reasonable expectation that “offers will be obtained from at least two responsible small business concerns” and at “fair market prices.” FAR 19.502-2(b).

Large government contractors must be aware that simply because they may be in a better position to provide better products than small businesses, this does not defeat the CO’s Rule of Two or total small business set aside decision.

The contracting officer is not required to analyze a small business’s ability to perform. See also sole source justifications and government contract bundling rules.

For More Solutions, Contact a Legal Professional for Help

For help filing a small business set aside protest based upon the SBA Rule of Two or violation of CICA, call our GAO protest lawyers at 1-866-601-5518.

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