December 9, 2008
Previously published on November 13, 2008
In one of the first decisions issued under its recently-expanded bid protest jurisdiction, the US Government Accountability Office (GAO) ruled that the so-called “Rule of Two” applies to task and delivery orders over $100,000 when issued under multiple-award indefinite-delivery/indefinite-quantity (ID/IQ) contracts.
The rule requires that an “acquisition” be set aside for small businesses if the agency reasonably expects that two or more responsible small businesses will submit offers at fair market prices. The decision, Matter of Delex Systems, Inc., B-400403 (October 8, 2008), constitutes a departure from the once-prevailing wisdom that the Rule of Two does not apply to task or delivery orders under ID/IQ contracts.
In the decision, GAO analyzed the statutory underpinnings of the Rule of Two and a prior GAO decision finding that a delivery order placed under an ID/IQ contract is, itself, a “contract” and considered an “acquisition” for some purposes. After determining the rule applies to task and delivery orders, GAO rejected the agency’s rationale for concluding that two responsible small business concerns would not submit viable offers. Because there were two responsible small business ID/IQ contract awardees, GAO sustained the protest and recommended that the agency make a new determination regarding whether the order should be set aside.
GAO’s decision is expected to have a significant impact on federal government contracting. If agencies follow the decision and set aside task and delivery orders greater than $100,000 when there are two or more responsible small business ID/IQ contract awardees, the number of such orders awarded to small businesses should sharply increase, to the exclusion of “large” (or other than small business) contractors. If agencies do not follow the decision, there likely will be a dramatic spike in bid protests filed at GAO and possibly the United States Court of Federal Claims (COFC). Either scenario would have a ripple effect throughout the procurement arena, with arguably both positive and negative results, including protest-induced delays on agencies satisfying their requirements, agencies re-thinking their acquisition plans and methods, new contractors working with agencies, varying quality of services and supplies, significant growth for small businesses and a decrease in business opportunities for some large contractors who traditionally assumed they could compete for all orders solicited.
Despite GAO’s decision, it remains unclear whether GAO will apply the Rule of Two to US General Services Administration Federal Supply Schedule (GSA FSS) contracts. As some commentators have noted, the Federal Acquisition Regulation (FAR) Subpart 8.4 provisions governing the GSA FSS program exempt GSA FSS contracts from the Rule of Two and most other small business preference requirements. However, the broad language and logic of the Delex decision, which is grounded in statute, arguably implies that the Rule of Two applies to all task and delivery order competitions under multiple-award ID/IQ contracts, including GSA FSS contracts. Should GSA, in awarding task and delivery orders – or GAO or the COFC in a protest – reach this conclusion, then small businesses that have not obtained a GSA FSS contract because of a perceived inability to compete with large contractors’ discounts would likely flock to the GSA FSS program. This is because a set aside would be required if two or more small businesses likely would compete at fair market prices – taking large contractors’ discounts off the table.
This decision appears to constitute GAO’s first sustained protest under its newly-enacted bid protest jurisdiction over task and delivery orders valued in excess of $10 million. Small business issues aside, this broader grant of jurisdiction is expected to result in an increase in GAO protests. Previously, with limited exceptions, task and delivery order competitions were not protestable in any forum, unless the protest alleged the task or delivery order increased the scope, period, or maximum value of the contract under which the order is issued, or a GSA FSS task or delivery order is at issue, which may be protested at GAO or the COFC by schedule holders.
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