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Rule of Two
The Federal Acquisition Regulations (“FAR”) implements the Small Business Act 1, in part, by requiring 2 Contracting Officers to set aside acquisitions in excess of $100,000 for small business if there is a reasonable expectation that two (2) or more responsible and responsive small businesses will submit fair market price offers. Therefore contracts with an expected value exceeding
$100,000 must be set aside exclusively for small business if there is a reasonable expectation that (1) offers will be received from two (2) or more small businesses concerns offering the products and services of different small business concerns and (2) award will be made at fair market prices.
This requirement was originally thought to apply only to new acquisitions and new contracts, not to new task or delivery orders under a multiple award contract.
That theory was challenged in the protest filed with the General Accountability Office (“GAO”) by Delex Systems, Inc., (“Delex”), File B-400403, dated October 8, 2008. Delex held an indefinite delivery / indefinite quantity (“ID/IQ”) contract with the Naval Air Systems Command (“NAVAIR”) for training systems. NAVAIR awarded eight training systems contracts four to large businesses and four to small businesses. NAVAIR issued a Delivery Order Proposal Request (“DOPR”) for General Aviation Training Products and contemplated a small business set aside. Shortly thereafter, the Small Business Administration (“SBA”) changed regulations pertaining to small business size status. NAVAIR requested the small businesses to re-certify their size status and two business concerns self-certified as small business.
The Contracting Officer (“CO”) decided two proposals from small businesses would not be received, and reissued the solicitation as full and open competition among all ID/IQ contract holders. Delex then protested the failure by the CO to comply with the Rule of Two.
The Navy argued the FAR 3 requires full and open competition while the regulations 4 state that the competition requirement does not apply to ID/IQ contracts, i.e. task and delivery contracts. The GAO rejected this argument and avers the Small Business Act 5 and the Competition in Contracting Act 6 were harmonized. The regulations at FAR Part 16.5 apply to task and delivery orders whereas the competition requirements in FAR Part 6 do not apply to ordering. The Rule of Two implements the Small Business Act and applies to orders. The GAO decided that the Rule of Two applies to any acquisition over $100,000. Orders are properly viewed as acquisitions. Every order placed can be considered a contract, and every contract is an acquisition. “In sum, we conclude that individually competed task and delivery orders are “acquisitions” for purposes of FAR 19.502-2 (b) so that the Rule of Two applies.”
The moral of the story is that small business concerns should insist that the CO follow the requirements stated in the Rule of Two in ID / IQ task order competition as well as in regular competitions for contracts. The larger question is whether CO’s will try to declare all acquisitions as full and open in order to avoid the Rule of Two and decide two or more proposals from small business concerns would not be received. Since protest of such orders will not be accepted under $10 Million, the government can merely invoke full and open competition and avoid the Rule of Two and a protest. Hence, awards to small businesses may decline as a result of the Delex case.
Tom Petruska, Owner
Contracts Unlimited, Incorporated
The foregoing is not legal advice or a legal opinion. See your attorney for legal advice.
Footnotes:
1.15 USC 644 (J)
2. FAR 19.502-2
3. FAR 6.203 (C)
4. FAR 16.505 (b) (i) (ii)
5. 15 U.S.C. 644 (a)
6. 10 U.S.C. 2304 (a)
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