Better Understand the Basics of CICA Rule of Two Small Business Set Aside Decisions 

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

The Rule of Two small business 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. See also information about defending against SDVOSB disputes.

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

When protesting under the CICA, the SBA Rule of 2 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.

Rule of two government contracting –  How Do Court Assess the Government’s Decision? 

Under 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 is 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 2 small business rule does not mandate any particular method for assessing the availability of small-business bidders.

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.  

When you are protesting the Rule of 2 small business 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 Rule of Two Decisions – 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 set-aside rule of two 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 rules provides 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.

Speak With a Lawyer. Get a Free Initial Consultation.

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

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