• Small Businesses May Have the Opportunity to Force the Federal Government to Set Aside Contracts
  • April 27, 2004
  • Law Firm: Epstein Becker & Green, P.C. - Washington Office
  • Federal procurements exceeding $100,000 generally must be set aside for small businesses when there is a reasonable expectation that at least two offers at fair market prices will be received from responsible small businesses. See Federal Acquisition Regulation ("FAR") 19.502-2(b); see also Rochester Optical Manufacturing Co., B-292247, B-292247.2, 2003 WL 21884,877 (Aug. 6, 2003). Where a procurement is set aside for small businesses, competition is restricted to small business offerors. Where the above criteria are present, and the agency fails to set aside the procurement for small businesses, a small business likely will have grounds to protest.

    The set aside determination generally is made during (or as a result of) market research performed by the agency prior to the solicitation's release. Before making the determination, the contracting officer must "make reasonable efforts to ascertain whether it is likely that offers will be received from at least two small businesses capable of performing the work." Rochester Optical, B-292247 (citing Neal R. Cross & Co., Inc., B-240924.2, 91-1 CPD 53 (Jan. 17, 1991)). The General Accounting Office ("GAO") will review a contracting officer's set aside determination to evaluate whether the contracting officer made such reasonable efforts. According to the GAO, a "particular method of assessing the availability of small businesses is not required." Id. (Citing McSwain & Assocs., Inc.; Shel-Ken Properties, Inc.; and Elaine Dunn Realty, B-271071 et al., 96-1 CPD 255 (May 20, 1996)). "Measures such as prior procurement history, market surveys, and/or advice from the agency's small business specialist and technical personnel may all constitute adequate grounds for a contracting officer decision not to set aside a procurement." Id.

    In Rochester Optical Manufacturing, GAO sustained the protest of a small business challenging the Department of Veterans Affairs determination not to conduct a procurement as a set aside for small businesses. The procurement sought eyeglass fabrication and on-site eyeglass fittings in three states┬┐Kentucky, Tennessee and West Virginia. (The earlier procurement had been conducted on a set aside basis.) In defending the decision not to set aside this procurement, the agency argued that: 1) it believed the two small businesses that participated in the prior procurement were not responsible; and 2) the prices offered by small businesses in earlier procurement were not low.

    GAO disagreed and noted:

    Although the prices proposed by Rochester and Barnett and Ramel under the prior procurement were not low (among the four offers received), . . . the fact that these two small business concerns received ID/IQ contracts under a small business set-aside reasonably demonstrates that the agency believed that their offers ultimately contained fair and reasonable prices.

    Rochester, B-292247; B-292247.2.

    The agency based its belief that the two firms were not responsible allegedly on two facts: 1) one of the contractors received a cure notice during performance; and 2) the other contractor subcontracted with a large business. Notably, the deficiency noted in the cure notice was corrected (and did not result in termination of the contract). And, there was no evidence that the subcontracting arrangement violated the 50% rule, i.e., the small business performed at least 50% of the work per the limitations in subcontracting clause. Accordingly, GAO determined that neither fact provided a reasonable basis for the agency's determination.

    Finally, GAO determined that the agency's market research had been less than adequate. The agency justification not to set aside the procurement indicated that the "Pro-Net, Sub-Net and minority business sites were checked and no available site was ascertained." Id., In performing the database search, among other things, the contracting officer limited the geographical region to one state (even though three were covered by the solicitation). And, the contracting officer incorrectly inserted $6.0 as the corresponding gross revenue amount-instead of the applicable $6,000,000.00 figure. GAO performed an independent database search without the deficiencies and identified 65 firms matching the search criteria. The agency did not have a response. GAO, accordingly, sustained the protest, noting:

    On this record, where the contracting officer's market research was geographically limited for no legitimate reason and where she used inaccurate information as the basis of her research, we conclude that the contracting officer's market research was materially deficient and could not reasonably be relied upon in determining not to conduct the current procurement as a small business set-aside. Id.

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    If you would like to discuss protest or other government contracts issues, please contact Kenneth B. Weckstein at 202/861-1860 or Tammy Hopkins at 202/955-7193 in the firm's Washington, D.C. office if you have any questions or comments. Mr. Weckstein's e-mail address is [email protected] and Ms. Hopkins e-mail adress is [email protected]

    This publication is provided by Epstein Becker & Green, P.C. for general information purposes; it is not and should not be used as a substitute for legal advice.