Jump to content

Hypothetical Rule of Two Questions


Recommended Posts

Suppose that the government has a single-award IDIQ contract for services with a five-year ordering period and that the contractor is a large business. Suppose further that the minimum value has already been purchased and that the maximum value has not yet been reached.

Now suppose that at the beginning of the fourth year of the ordering period the government has a new requirement for services that is within the scope of that contract and that is expected to exceed the simplified acquisition threshold, but that would not cause the IDIQ maximum to be exceeded.

Three questions:

  1. Would the issuance of an order against the IDIQ contract constitute an "acquisition" as defined by FAR 2.101?
  2. Must the government make a "rule of two" determination in accordance with FAR 19.502-2(b) before issuing an order against that IDIQ contract?
  3. If your answer to Question 2 is yes, would your answer to be different if the IDIQ contract were with a small business contractor?
Link to comment
Share on other sites

  • 2 weeks later...

1. Yes

FAR 2.101 -  "Acquisition means the acquiring by contract with appropriated funds of supplies or services (including construction) by and for the use of the Federal Government through purchase or lease, whether the supplies or services are already in existence or must be created, developed, demonstrated, and evaluated. Acquisition begins at the point when agency needs are established and includes the description of requirements to satisfy agency needs, solicitation and selection of sources, award of contracts, contract financing, contract performance, contract administration, and those technical and management functions directly related to the process of fulfilling agency needs by contract."

2. As it reads - Yes

19.502-2(b) - "Before setting aside an acquisition under this paragraph, refer to 19.203(c). The contracting officer shall set aside any acquisition over the simplified acquisition threshold for small business participation when there is a reasonable expectation that-

           (1) Offers will be obtained from at least two responsible small business concerns; and

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

3. No

A single small business receiving the award is not a set aside and would not comply. 

Link to comment
Share on other sites

Getting away from good ole FAR, as there is some logic missing. 

On 3/21/2021 at 1:47 PM, Vern Edwards said:

the government has a single-award IDIQ contract for services

GSA has thousands of contracts that agencies can order from. If someone is sitting at DOE and wants to place a task order against a SAIDIQ, on FSS, with a LB and not consider small business concerns first, we all know how that turns out. 

But, if someone sitting at DOE has a "local" SAIDIQ, with a LB and the rule of two was applied to it, I believe it falls under the realm of an "established contract."

FAR 2.101 - "Task order means an order for services placed against an established contract or with Government sources."

If the answers in my first post hold true 100% of the time, we might as well throw half of FAR 16 out window as a SAIDIQ could never be ordered against, no matter the company's mall business status. 

Link to comment
Share on other sites

On 3/21/2021 at 1:47 PM, Vern Edwards said:

2.  Must the government make a "rule of two" determination in accordance with FAR 19.502-2(b) before issuing an order against that IDIQ contract?

In my opinion, no.  As I read FAR section 19.502, I see three equal subsections--

  1. 19.502-2 for total set-asides,
  2. 19.502-3 for partial set-asides, and
  3. 19.502-4 for (i) reserving parent IDIQ contract awards for small businesses, (ii) setting aside parts of parent IDIQ contracts, and (iii) setting aside orders under IDIQ contracts or schedule contracts.

If the question is related to a particular order, we're under 3.  I cannot give meaning to 19.502-2, -3, and -4 at the same time for the same action.

And, 19.502-5 also plays in my calculus -- if I am doing a total set-aside under 19.502-2, my choices are FAR part 13, 14, or 15 -- clearly, this cannot work for an ordering situation.  This supports my belief that 19.502-2 and -3 apply to open market actions while -4 applies to ordering.

 

 

Link to comment
Share on other sites

2 hours ago, Constricting Officer said:

2. As it reads - Yes

19.502-2(b) - "Before setting aside an acquisition under this paragraph, refer to 19.203(c). The contracting officer shall set aside any acquisition over the simplified acquisition threshold for small business participation when there is a reasonable expectation that-

           (1) Offers will be obtained from at least two responsible small business concerns; and

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

Under an IDIQ with a large business you don’t have a reasonable expectation that offers will be obtained from at least two responsible small business concerns, right?

Link to comment
Share on other sites

3 hours ago, Jamaal Valentine said:

Under an IDIQ with a large business you don’t have a reasonable expectation that offers will be obtained from at least two responsible small business concerns, right?

I agree with you in practice. The question was posed this way b/c if an acquisition, as defined by FAR 2.101, is bring planned and there are two small business concerns what right down we have not to set it aside. 

1 hour ago, Vern Edwards said:

Have you all seen Tolliver v. U.S., 151 Fed.Cl. 70 (Nov. 2020) and ITility, LLC, GAO B-419167 (Dec. 2020)?

I posted my reaction - Applying the "Rule of Two" to MATOCs - Contract Award Process - The Wifcon Forums and Blogs

I agree with GAO. 

With that, I think we are walking into a different conversation from discussing a SAIDIQ/if we can use it or not compared to a MAIDIQ/whether or not to set aside some under it.

If I am wrong let me know. I am here to learn and occasionally help when I can. 

Link to comment
Share on other sites

1 hour ago, Vern Edwards said:

If so, who do you think is right?

I think the GAO has it right. The COFC's interpretation renders 15 USC 644(r)(2) meaningless. There would never be a situation where the contracting officer would have the discretion to set aside an order. If the rule of two were met among the contractors holding a multiple-award contract, the acquisition would have to be set aside--either among the SB IDIQ holders or as a competition for a new contract. 15 USC 644(r)(2) has to mean something. 

Link to comment
Share on other sites

9 hours ago, Don Mansfield said:

The COFC's interpretation renders 15 USC 644(r)(2) meaningless.

@Don Mansfield So what? Even if that is true—though it may not be—why would that make the court's decision about the application of the rule of two wrong?
 

Quote

15 USC 644(r)(2) has to mean something. 

Maybe it means what it says: "[N]otwithstanding the fair opportunity requirements under section 2304c(b) of title 10 and section 4106(c) of title 41, [agencies may] set aside orders placed against multiple award contracts for small business concerns, including the subcategories of small business concerns identified in subsection (g)(2)..." 

Link to comment
Share on other sites

8 hours ago, Vern Edwards said:

Why?

I'm not a lawyer, but here are my thoughts  -- they might not be sufficient for you, but they are honest...

(1) I have more confidence in the collective, deliberate, and long-standing wisdom of the GAO than a single COFC judge.

(2) The Tolliver case is messy -- it involves prior protests and corrective actions and contract terminations and RFQ cancellations and so forth.  Sometimes, messy cases make bad law.

(3) As you mentioned in another thread, the Government is appealing the Tolliver decision -- this is a big deal and is meaningful, as the Government rarely appeals in contracts cases.

(4) The GAO interpreted and applied 15 USC 644(r) with intentionality in a way that gives it meaning.

(5) The rule-of-two will already have been considered in the acquisition to establish the parent IDIQ contract -- a mandatory re-application of the rule-of-two to every ordering situation is contrary to the principles of fair opportunity.

(6) The DAR Council and CAA Council went through a rule-making process for the text of FAR 16.505(b)(2)(i)(F) and gave discretion to contracting officers -- the COFC case erases that discretion, as well as the discretion that 15 USC 644(r) gave to agencies.

(7) In 15 USC 644(r), the Congress and President gave authority to the OFPP Administrator, SBA Administrator, and GSA Administrator to establish the regulation to implement the statute -- not a single judge at COFC.

(8) The Tolliver case is hard reading, and seems convoluted.  In contrast, the GAO decisions are straight-forward and easier for me to understand.

(9) I like to think of ordering as a matter of post-award contract administration, rather than a brand-new acquisition.  I like to think of an ordering situation as a continuation or implementation of an on-going acquisition (the parent IDIQ contract) rather than the start of a wholly new acquisition.

For all of these reasons, I think the GAO is right.

 

Link to comment
Share on other sites

1 hour ago, ji20874 said:

I'm not a lawyer, but here are my thoughts  -- they might not be sufficient for you, but they are honest...

@ji20874 I appreciate your thoughts, and I thank you for sharing them.

You don't have to preface your remarks about anything by saying you are not a lawyer. I am not a lawyer. You and I are acquisition practitioners of long-standing. I do not come here for the opinions of lawyers. I know plenty of lawyers and some of the best in the country. I can call or write to them when I want to discuss a legal issue with them. Besides, they don't necessarily know the answer. They learn about this stuff the same way we do—by reading, thinking, talking, and listening. But what lawyers are especially good at is researching a problem, thinking about it in a special way, and constructing special kinds of arguments. We can do that, too—but we can't give legal advice or represent clients.

Of course your thoughts are honest! Why wouldn't they be? You and I don't always agree, but so what? In this case I have developed a preliminary opinion, which has been published, but I'm still pondering the issue, so I came here to see what others think. What I want to do is find a solution to the problem that makes sense. But I think we have to work our way through it in order to get there.

Thanks for contributing to this thread. Don't go away. I hope this is more interesting than trying to answer unclear questions.

Link to comment
Share on other sites

I have a feeling I'm in the minority here, but I keep reading 15 USC 644(r) and 19.502-4. Is there any credence to the thought that the reason 19.502-4 says may is to allow for the exception to fair opportunity required in 15 USC 644(r)?  Or in other words, because fair opportunity is required under a IDIQ, the FAR clause is written to allow for the exception so the rest of FAR 19 can be followed.  Do we really think Congress wrote a law that intentionally gave the government a route to avoid all other SB requirements of the FAR? Because in practice (and contractually according to GAO ) if the government decides to use a IDIQ, they are no longer required to follow the rest of FAR part 19.  

Again, I am probably in the minority but the more I read Toliver I understand the fundamental point, the government's responsibility to maximize SB participation isnt minimized by using an IDIQ.  

Link to comment
Share on other sites

11 hours ago, Vern Edwards said:

Why?

1-GAO specializes in this realm.

2-GAO cites precedent to support their decision and it is logical:

GAO in B-419167 (Itility):

"We further expounded on our statutory interpretation of Section 644(r) in Aldevra, B-411752, Oct. 16, 2015, 2015 CPD ¶ 339. In Aldevra, the protester, supported by the SBA, argued that because a proposed Federal Supply Schedule (FSS) order had an anticipated value between the micropurchase and simplified acquisition thresholds, the agency was required to comply with small business set-aside requirements. We disagreed based on the discretionary language of 15 U.S.C. § 644(r). Specifically, we explained that:

Given the language of the Jobs Act, as well as regulatory provisions implementing the Jobs Act, it is readily apparent that the general small business set-aside rule . . . implemented under FAR § 19.502-2, does not apply when placing orders under the FSS program. In this regard, the Jobs Act clearly provides for granting agency officials discretion in deciding whether to set aside orders under multiple-award contracts (EA)."

3-COFC does not handle these decisions day in and day out.

4-COFC:

"In sum, what the government really seems to be arguing is that the agency, having awarded its preferred TMS MAIDIQ without any set-aside component, is now exempt from applying the Rule of Two to any proposed procurement (or acquisition) of services that might be obtained using the TMS MAIDIQ. Put yet differently, the government asserts that, having exercised its discretion not to set-aside any portion of the TMS MAIDIQ scope or any of the TMS MAIDIQ‘s contract awards for small business, the agency can utilize the TMS MAIDIQ for any acquisition – and avoid the Rule of Two – so long as the contemplated scope of work is within the TMS MAIDIQ’s scope. No statutory or regulatory language, however, supports such a sweeping inference (EA).

If they can't point to something that "says no," I would not say nothing "says yes." That "sweeping inference" is the same thing as an agency/CO's decision. 

If there was anything else I had to add, @ji20874 covered it better than I ever could.

Link to comment
Share on other sites

31 minutes ago, sdvr said:

Do we really think Congress wrote a law that intentionally gave the government a route to avoid all other SB requirements of the FAR?

Congress really did write a law that intentionally gives agencies the discretion to do a set-aside for an order against a multiple-award IDIQ contracts, rather than mandating a set-aside under the mandatory application of the rule-of-two.  By the way, the rule-of-two would already have been mandatorily applied in the acquisition for the parent IDIQ contract.

Link to comment
Share on other sites

31 minutes ago, sdvr said:

Again, I am probably in the minority but the more I read Toliver I understand the fundamental point, the government's responsibility to maximize SB participation isnt minimized by using an IDIQ.  

What if I said SB had already had their chance to compete for SAIDIQ and didn't make it? 

What if I said that the SB is a member of the MAIDIQ and agreed to the terms of such? Isn't fair opportunity defined by the contract at that point?

Link to comment
Share on other sites

1 hour ago, ji20874 said:

Congress really did write a law that intentionally gives agencies the discretion to do a set-aside for an order against a multiple-award IDIQ contracts, rather than mandating a set-aside under the mandatory application of the rule-of-two. 

Read the statute, 15 USC 644(r)(2):

Quote

(r)Multiple award contractsNot later than 1 year after September 27, 2010, the Administrator for Federal Procurement Policy and the Administrator, in consultation with the Administrator of General Services, shall, by regulation, establish guidance under which Federal agencies may, at their discretion... (2) notwithstanding the fair opportunity requirements under section 2304c(b) of Title 10 and 4106(c) of Title 41 set aside placed against multiple award contracts for small business concerns, including the subcategories of small business concerns identified in section (g)(2)....

Note the specific references to the two statutes.

I think that could be interpreted as sdvr suggests: it frees agencies from the requirement to provide a fair opportunity to "all contractors" so they can make set asides in accordance with the rule of two; it does not free agencies from the requirement to comply with the rule of two when placing orders. Before the law the fair opportunity statute conflicted with the rule of two regulation, statute taking precedence. FAR 15 USC 644(r)(2) eliminated the conflict.

Why shouldn't it be read that way? If you read it that way, then when considering whether to proceed under a MATOC a CO might be able to comply with the rule of two by setting an order aside. That would eliminate any issue about the applicability of the rule of two to MATOCs. If the rule of two applies, and if a MATOC has no small business contractors, or only one, then the CO would have to award a new contract instead of placing an order. That approach would be consistent with national small business policy as set forth in 15 USC 644(a), which has been in place for decades.

I doubt very much that Congress intended that agencies be able to bypass the rule of two simply by choosing to proceed under a MATOC. The rule of two has been around since 1979. When OFPP once proposed to eliminate it Congress threatened to make it statutory instead of just regulatory. Do you think they intended to abandon it when they passed the Small Business Jobs Act of 2010?

Link to comment
Share on other sites

Just now, Constricting Officer said:

#1 What if I said SB had already had their chance to compete for SAIDIQ and didn't make it? 

 

#2 What if I said that the SB is a member of the MAIDIQ and agreed to the terms of such? Isn't fair opportunity defined by the contract at that point?

#1 - I dont think it makes a difference. When does an acquisition start? If the government is considering a purchase, dont they need to consider SB first? 

#2 -  This is my point. All members of an IDIQ are required to get Fair Opportunity, 19.502-4 allows for the exception

Link to comment
Share on other sites

By the way, agencies do have discretion with respect to the rule of two. It is discretion with respect to the determination whether there are two or more responsible small businesses that can do the work, not with respect to complying with the rule if there are two or more such small businesses.

See AeroSage, LLC. GAO B-414917, Oct. 17, 2017:

Quote

Generally, under Federal Acquisition Regulation (FAR) §19.502–2(b), a procurement with an anticipated dollar value of more than $150,000 must be set aside for exclusive small business participation when there is a reasonable expectation that offers will be received from at least two responsible small business concerns, and that award will be made at a fair market price. This standard is commonly referred to as the “rule of two.” The decision whether to set aside a procurement may be based on an analysis of factors such as the prior procurement history, the recommendations of appropriate small business specialists, and market surveys that include responses to sources-sought announcements or requests for information. Commonwealth Home Health Care, Inc., B–400163, July 24, 2008, 2008 CPD ¶140 at 3. The determination as to whether the rule of two is satisfied is a matter of business judgment within the contracting officer's discretion that we will not disturb absent a showing that it was unreasonable. Information Ventures, Inc., B–400604, Dec. 22, 2008, 2008 CPD ¶232 at 3.

Emphasis added. The determination as to whether there are two responsible small businesses. Maybe that's the discretion that the CO gets to exercise pursuant to 15 USC 644(r)(2) when deciding whether to comply with the fair opportunity statutes.

Link to comment
Share on other sites

27 minutes ago, Vern Edwards said:

I think that could be interpreted as sdvr suggests: it frees agencies from the requirement to provide a fair opportunity to "all contractors" so they can make set asides in accordance with the rule of two

I disagree.  Words have meaning.  The statute did not say that the agency shall use a set-aside used when certain conditions for a set-aside exist; rather, the statute gives agencies discretion to do set-asides in ordering situations.  To me, the Tolliver decision erases any meaning for the word discretion and makes set-asides mandatory if certain conditions exist.

7 minutes ago, Vern Edwards said:

By the way, agencies do have discretion with respect to the rule of two. It is discretion with respect to the determination whether there are two or more responsible small businesses that can do the work, not with respect to complying with the rule if there are two or more such small businesses. 

I disagree.  When the rule-of-two applies, agencies must apply it and must do a set-aside if certain conditions exist.  There is no discretion:  "The contracting officer shall set aside any acquisition . . . when there is a reasonable expectation that. . ."  As I see it, there is room for some professional judgment with the rule-of-two, but not discretion.

Anyway, I'm not the decision-maker.  I'm glad to be in the company of the GAO and the Justice Department on this matter.  I hope ordering is kept available and streamlined -- the ordering process is already over-burdened by too much baggage.  Having to do extensive market research and apply the rule-of-two before each and every ordering situation where there might be a large business contractor defeats the purpose of even having an ordering methodology.

Link to comment
Share on other sites

4 minutes ago, ji20874 said:

I disagree.  When the rule-of-two applies, agencies must apply it and must do a set-aside if certain conditions exist.  There is no discretion:  "The contracting officer shall set aside any acquisition . . . when there is a reasonable expectation that. . ."  As I see it, there is room for some professional judgment with the rule-of-two, but not discretion.

@ji20874You didn't read carefully. The discretion is not with respect to complying with the rule when there are two small businesses. The discretion is with respect to whether there are two small businesses. I'm relying on your precious GAO, of which you think so highly. They said the CO has discretion in that regard.

Link to comment
Share on other sites

8 minutes ago, ji20874 said:

I hope ordering is kept available and streamlined

@ji20874I hope it becomes streamlined. But setting an order aside shouldn't make it any less streamlined.

I tellin' ya: If the GAO is right the small business lobby is going to go to work on Congress and the rule of two is going to become statutory.

I have to sign off for a while. You guys have at it.

Link to comment
Share on other sites

4 minutes ago, Vern Edwards said:

You didn't read carefully.

I did read carefully, and I responded carefully.  Deciding whether there are two small businesses for the rule-of-two might be a matter of professional judgment, but is not a matter of discretion.  We might have differing understandings of the word "discretion."

2 minutes ago, Vern Edwards said:

But setting an order aside shouldn't make it any less streamlined.

Having to do and document a mandatory rule-of-two analysis before every ordering situation where a large business contractor holds one of the IDIQ contracts (or a large business contractor holds a single-award IDIQ or other indefinite delivery contract) is not a move towards streamlining.

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
×
×
  • Create New...