Small Business Set-Aside

[GABE]

Hello:

First off, thank you for accepting me to this forum.  There are some great topics, topics that are extremely beneficial in the contracting field.

 

With a small business set-aside, let's say the contacting officer can't deem the pricing fair and reasonable. This determination is based on prior purchases for similar products. What is/are the CO's options regarding reward?

 

Thank you,

[napolik]

19.506 -- Withdrawing or Modifying Small Business Set-Asides.

(a) If, before award of a contract involving a small business set-aside, the contracting officer considers that award would be detrimental to the public interest (e.g., payment of more than a fair market price), the contracting officer may withdraw the small business set-aside determination whether it was unilateral or joint. The contracting officer shall initiate a withdrawal of an individual small business set-aside by giving written notice to the agency small business specialist and the SBA procurement center representative (or, if a procurement center representative is not assigned, see 19.402(a)) stating the reasons. In a similar manner, the contracting officer may modify a unilateral or joint class small business set-aside to withdraw one or more individual acquisitions.

(b) If the agency small business specialist does not agree to a withdrawal or modification, the case shall be promptly referred to the SBA representative (or, if a procurement center representative is not assigned, see 19.402(a)) for review.

(c) The contracting officer shall prepare a written statement supporting any withdrawal or modification of a small business set-aside and include it in the contract file.

[napolik]

You might wish to read Camden Shipping Corporation, B-406171; B-406323, Feb.27, 2012: http://www.gao.gov/assets/590/588932.pdf

Quote

2. Agency had a reasonable basis to cancel a solicitation for the operation and maintenance of a vessel that was set-aside for small businesses, and reissue the solicitation for the same services on an unrestricted basis, where the record supports the agency’s determination that prices offered by the small businesses in response to the solicitation set aside for small businesses were unreasonable. 

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A determination of price reasonableness for a small business set-aside is within the discretion of the contracting agency, and we will not disturb such a determination unless it is unreasonable. A. Hirsh, Inc., B-271829, July 26, 1996, 96-2 CPD ¶ 55 at 2. In making such a determination, the agency may consider such factors as the government estimate, the procurement history for the solicited services, the current market climate, and the “courtesy bid” of an otherwise ineligible large business offeror. Id.; Nutech Laundry & Textiles, Inc., B-291739, Feb. 10, 2003, 2003 CPD ¶ 34 at 4; see FAR §§ 19.202-6, 15.404-1(b). We have recognized that, in view of the congressional policy favoring small businesses, contracts may be awarded under small business set-aside procedures to small business firms at premium prices, so long as those prices are not unreasonable.3 Hardcore DuPont Composites, L.L.C., B-278371, Jan. 20, 1998, 98-1 CPD ¶ 28 at 3. The determination of whether a small business price premium is unreasonable depends on the circumstances of each case, Olsen Envtl. Servs., Inc., B-241475, Feb. 6, 1991, 91-1 CPD ¶ 126 at 2-3, and we have found cancellations proper where the protester’s price exceeded the government estimate by as little as 7.2 percent. See Building Maint. Specialists, Inc., B-186441, Sept. 10, 1976, 76-2 CPD ¶ 233 at 4. The record here provides a reasonable basis for the agency’s decision to cancel RFP 10-2501, a small business set-aside, and issue RFP 12-2501, which is essentially the same solicitation, on an unrestricted basis. As previously noted, prior to canceling RFP 10-2501 and withdrawing the set-aside, the agency first found, and the record confirms, that the three small business offerors’ prices were significantly higher than the IGE and the price proposed by Seaward. The agency next conducted a market survey to gain more information on which to base a determination of price reasonableness. The record further reflects that after confirming through the market survey that the prices offered by the small businesses were unreasonably high, the contracting officer engaged in multiple rounds of discussions in an attempt to get the small business offerors to lower their prices to a point that they could be determined fair and reasonable. It was only after this lengthy and relatively involved process that MSC, with the concurrence of SBA, ultimately determined that an award could not be made to any of the small business offerors under RFP 10-2501 because their prices were not fair and reasonable. Although the protester clearly disagrees with the agency’s determination, that disagreement does not provide a basis on which to find the agency’s determination unreasonable.

 

[GABE]

Thank you for your comment sir.

[Matthew Fleharty]

GABE,

Is this merely a hypothetical?  I only ask because for small business set-asides (except those which allow for sole source awards) there is a "Rule of Two" requirement to help ensure there is competition which should drive fair and reasonable pricing (though understandably not always).  That is also why there are multiple techniques one can use to evaluate whether or not a price is fair and reasonable.  In your case if a determination cannot be based on prior purchases for similar products, have any of the other techniques listed at FAR 15.404-1(b)(2) been considered?

If, however, the proper amount of price analysis has been performed and the price is not fair and reasonable, napolik's references are on the mark and I'd focus your attention/efforts there.

[Guest Vern Edwards]

Actually, the official term in connection with small business set-asides is "fair market price," not fair and reasonable price. That term is used in 13 CFR and in FAR. See Analytical Graphics, Inc., B-413385, 2016 CPD ¶ 293 and 319 other GAO decisions.

[Matthew Fleharty]

Vern's right about terminology, my mistake, though the fair market price is determined consistent with my previous reference.  See FAR 19.202-6 "Determination of Fair Market Price":

Quote

(a) The fair market price shall be the price achieved in accordance with the reasonable price guidelines in 15.404-1(b) for—

  (1) Total and partial small business set-asides (see Subpart 19.5);

  (2) HUBZone set-asides (see subpart 19.13);

  (3) Contracts utilizing the price evaluation preference for HUBZone small business concerns (see subpart 19.13);

  (4) Service-disabled veteran-owned small business set-asides (see subpart 19.14); and

  (5) Set-asides for EDWOSB concerns and WOSB concerns eligible under the WOSB Program (see subpart 19.15).

(b) For 8(a) contracts, both with respect to meeting the requirement at 19.806(b) and in order to accurately estimate the current fair market price, contracting officers shall follow the procedures at 19.807.

 

[C Culham]

deleted

[Matthew Fleharty]

2 hours ago, C Culham said:

Not that it means anything but in reading this thread I picked up on the word "purchases".   So some additional questions might be appropriate.  Such as is this a simplified acquisition, simplified acquisition using simplified acquisition procedures (commercial item over the SAT)?   Noting as while FAR part 15 might apply, FAR part 13 may be the appropriate consideration on strategy.  

What would be the substantive differences in regards to determining a fair market price that concern you?  I don't see many differences between FAR 15.404-1(b)(2) and FAR 13.106-3(a)...

[C Culham]

I deleted the referenced post provided by Matthew .   FAR 19.202-6 applies with regard to determining fair market price that is it.