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Don Mansfield

Total Small Business Set-Asides

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FAR 19.502-2( b ) states:

Before setting aside an acquisition under this paragraph, refer to 19.203(c ). The contracting officer shall set aside any acquisition over $150,000 for small business participation when there is a reasonable expectation that:

(1) Offers will be obtained from at least two responsible small business concerns offering the products of different small business concerns (but see paragraph © of this section); and


(2) Award will be made at fair market prices.



FAR 19.502-2( a ) states:

Each acquisition of supplies or services that has an anticipated dollar value exceeding $3,000 ($15,000 for acquisitions as described in 13.201(g)(1)), but not over $150,000, ($300,000 for acquisitions described in paragraph (1) of the Simplified Acquisition Threshold definition at 2.101), is automatically reserved exclusively for small business concerns and shall be set aside for small business unless the contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of market prices, quality, and delivery.


Note that, unlike FAR 19.502-2( b ), FAR 19.502-2( a ) does not require that there be a reasonable expectation of receiving offers of products of different small business concerns--just offers from two or more small business concerns.

Question: Assume you have a requirement for a brand name item manufactured by a small business concern valued at $100,000. You expect to receive offers from two or more responsible small business concerns offering the brand name item. You will use SAP (so FAR part 6 doesn't apply). Is the acquisition automatically reserved for small business?

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That is an excellent question. I started an answer and then backspaced it out. I know that our office would say that it should be automatically set aside, but I don't know that the FAR references back that up, because of the ambiguitiy you point out.

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Don:

You asked:

Question: Assume you have a requirement for a brand name item manufactured by a small business concern valued at $100,000. You expect to receive offers from two or more responsible small business concerns offering the brand name item. You will use SAP (so FAR part 6 doesn't apply). Is the acquisition automatically reserved for small business?

You have already quoted FAR 19.502-2(a). See the statute, 15 USC § 644(j)(1):

(j) Small business reservation

(1) Each contract for the purchase of goods and services that has an anticipated value greater than $2,500 but not greater than $100,000 shall be reserved exclusively for small business concerns unless the contracting officer is unable to obtain offers from two or more small business concerns that are competitive with market prices and are competitive with regard to the quality and delivery of the goods or services being purchased.

(Note: The dollar values in the statute have been adjusted upward for inflation pursuant to 41 USC § 1908. See FAR 1.109.)

I don't think the language in the statute or the FAR is ambiguous or vague. However, there is a subtlety in it that might cause disagreement. The subtlety lies in the FAR phrase "competitive in terms of market prices, quality, and delivery." Can offers of the same product be competitive in terms of quality?

While it seems to me that offers of the same product could be competitive in terms of price and delivery, a person might argue that they could not be competitive in terms of quality, since all would be offering the same quality. However, Webster's Third New International Dictionary provides the following as one of the definitions of the adjective "competitive": "as good or better than others of the same kind". Emphasis added. The New Oxford American Dictionary also provides that definition.

Based on that definition of competitive, and if prices and delivery would be competitive, then I conclude that the answer to your question is yes, the acquisition in your scenario is automatically reserved for small businesses.

I don't have time for much research right now, so I might have missed something in statute, FAR, or protest case law that would prompt me to a different conclusion.

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Last sentence in FAR 19.502-2( c ) addresses the Contracting Officer's decision not to set-aside a requirement under paragraph a.

In both of these cases, the contracting officer’s determination in paragraph ( b ) (1) of this subsection or the decision not to set aside a procurement reserved for small business under paragraph (a) of this subsection will be based on the expectation of receiving offers from at least two responsible small businesses, including nonmanufacturers, offering the products of different concerns.

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Martin:

What do you make of the last sentence of paragraph ( c):

In both of these cases, the contracting officer’s determination in paragraph ( b )(1) of this subsection or the decision not to set aside a procurement reserved for small business under paragraph (a) of this subsection will be based on the expectation of receiving offers from at least two responsible small businesses, including nonmanufacturers, offering the products of different concerns.

Why would the decision not to set aside under (a) depend on receiving offers from at least two?

If you have an expectation of receiving two, why would you not set aside? Should it say that the decision not to set aside under (a) depends on not receiving offers from at least two. Or should it say that the decision not to set aside depends on whether (or not) offers will be received from at least two?

Also, since the bit about "offering products of different concerns" does not appear in the statute, do the FAR councils have the authority to impose an additional restriction on set-asides under paragraph (a)?

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Mr. Edwards:

Paragraph ( c ) as written does not make sense. The decision to not set-aside a requirement under paragraph ( a ) should depend on the fact that there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns...

In regards to the FAR councils having authority to impose an additional restrictions I need to research further to make an informed decision. No need to give my opinion if I can’t substantiate it.

The fact that the “offering the products of different small business concerns” language in FAR 19.502-2 ( b ) (1) does not track with SBA regulations also caught my attention. See for example 13 CFR 125.19( b ) (2) and 13 CFR 127.503( d )(2). I am curious, anyone knows what prompted the current language in FAR 19.502-2( b )(1) and why is it different than the one in 13 CFR?

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I don't know why FAR does not track with 13 CFR. I suspect that no one on the FAR councils knows, either.

As for the authority of the FAR councils, they have had their hands slapped in the past for deviating from statutory language. See, e.g., Caldera v. J.S. Alberici Const. Co., Inc., 153 F.3d 1381 (Fed. Cir. 1998) (invalidating parts of FAR 33.207 and 52.233-1 based on conflict with 41 U.S.C. § 611, now 41 U.S.C. § 7109). See also Burnside-Ott Aviation Training Center v. Dalton, 107 F.3d 854 (Fed. Cir. 1997); J.S. Alberici Constr. Co., Inc., ENGBCA 6179, 97-1 BCA ¶ 28639; and Servidone Constr. Corp. v. U.S., 931 F.2d 896 (Fed. Cir. 1991).

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Last sentence in FAR 19.502-2( c ) addresses the Contracting Officer's decision not to set-aside a requirement under paragraph a.

In both of these cases, the contracting officer’s determination in paragraph ( b ) (1) of this subsection or the decision not to set aside a procurement reserved for small business under paragraph (a) of this subsection will be based on the expectation of receiving offers from at least two responsible small businesses, including nonmanufacturers, offering the products of different concerns.

That sentence only applies to acquisitions where the nonmanufacturer rule has been waived or the exception described applies ("In both of these cases..."). Here's the paragraph in its entirety:

For small business set-asides other than for construction or services, any concern proposing to furnish a product that it did not itself manufacture must furnish the product of a small business manufacturer unless the SBA has granted either a waiver or exception to the nonmanufacturer rule (see 19.102(f)). In industries where the SBA finds that there are no small business manufacturers, it may issue a waiver to the nonmanufacturer rule (see 19.102(f)(4) and (5)). In addition, SBA has excepted procurements processed under simplified acquisition procedures (see Part 13), where the anticipated cost of the procurement will not exceed $25,000, from the nonmanufacturer rule. Waivers permit small businesses to provide any firm’s product. The exception permits small businesses to provide any domestic firm’s product. In both of these cases, the contracting officer’s determination in paragraph (B )(1) of this subsection or the decision not to set aside a procurement reserved for small business under paragraph (a) of this subsection will be based on the expectation of receiving offers from at least two responsible small businesses, including nonmanufacturers, offering the products of different concerns.

If the nonmanufacturer rule has been waived or the acquisition will not exceed $25,000, then there must be a reasonable expectation of receiving offers from at least two SB concerns offering the products of different concerns. In my scenario, the nonmanufacturer rule has not been waived and the acquisition exceeds $25,000.

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Don,

Thanks for setting me straight on the applicability of FAR 19.502-2( c ).

Could language in FAR 19.502-2( b )(1) be challenged based on inconsistency with SBA implementing regulations?

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Don,

Thanks for setting me straight on the applicability of FAR 19.502-2( c ).

Could language in FAR 19.502-2( b )(1) be challenged based on inconsistency with SBA implementing regulations?

Sure, it could be challenged. However, I don't know that such a challenge would be successful. The requirement for there to be a reasonable expectation of receiving offers of products of different small business concerns is as old as the FAR. (It used to apply to all acquisitions until the implementation of FASA, which removed that requirement for acquisitions described in FAR 19.502-2(a). See 60 FR 34741.) Recently, in Matter of: Latvian Connection General Trading and Construction LLC, B-408633, September 18, 2013, the GAO did not take exception to the FAR Council's restrictive implementation of the Small Business Act--which it only applies to acquisitions inside the United States and outlying areas (See FAR 19.000( b )). From the decision:

Unlike the Small Business Act and the SBA's regulations, FAR §19.000( b ) specifically addresses the applicability of §644(j)(1) outside the United States and its outlying areas. The FAR is promulgated under the authority of the Office of Federal Procurement Policy Act (OFPP), which directs the Administrator of the OFPP to prescribe procurement policies that are implemented in a single government-wide regulation (the FAR). See 41 U.S.C. §1121( b ). Pursuant to this authority, the government has established the Federal Acquisition Regulatory Council to issue and maintain the FAR.See 41 U.S.C. §1303(a). The limitation here has been in the FAR since its inception and has existed in prior regulations since at least 1959. See Armed Services Procurement Regulation (ASPR) §1.700 (the small business set-aside rules of the Small Business Act applied only in the United States, its possessions, and Puerto Rico); 24 Fed. Reg. 3,584 (May 5, 1959).

In accordance with the Court's guidance in Chevron and its progeny, we give deference to an agency's regulatory implementation of a statute, unless the regulation is procedurally defective, arbitrary, or capricious in substance, or manifestly contrary to the statute. See Mead, 533 U.S. at 227–31;Chevron, 467 U.S. at 843 –44. Given the silence of the Small Business Act with respect to the application of §644(j)(1) outside the United States and its outlying areas, we cannot say that the validly-promulgated, long-standing regulation found at FAR §19.000( b ) is inconsistent with, or contrary to, the Small Business Act. This FAR provision is also not inconsistent with the SBA's own regulation implementing §644(j)(1). Although the SBA disagrees with how the Federal Acquisition Regulatory Council has interpreted the Small Business Act in this regard, and states that our Office is required to give deference to the SBA's interpretation of the Act, the SBA's interpretation reflects its informal legal opinion. The SBA's view of the statute-which is not reflected in its own implementing regulation despite the existence of the government -wide FAR rule for decades-does not overcome the deference accorded to the FAR.

Similar to their silence regarding their geographic applicability, neither the Small Business Act nor the SBA regulations specifically address whether there needs to be a reasonable expectation of receiving offers of products from different small business concerns. As such, I would not be surprised if the GAO gave deference to the FAR Council's interpretation in a protest based on the inconsistency between FAR 19.502-2( b ) and the SBA regulations.

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However, see MCS Portable Restroom Service, B-299291, March 28, 2007 where the GAO found that FAR 19.1406(a) was inconsistent with SBA regulations and the Small Business Act.

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