In Latvian Connection General Trading and Construction LLC, B-408633, September 18, 2013, the Comptroller General denied a protest of a solicitation issued by an Air Force unit in Oman for armored cable to be used at Thumrait Air Base, Oman. At issue was the Air Force’s decision to not automatically reserve the acquisition for small business concerns, which both the protester and the Small Business Administration (SBA) argued was required under the Small Business Act. The protester relied on 15 U.S.C. § 644(j)(1), which states:
“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: these thresholds have since been raised by the FAR Council. See FAR 19.502-2( a ).]
The SBA implemented this statutory provision at 13 C.F.R. § 125.2(f)(1), which states that contracting officers (COs):
...shall set aside any acquisition with an anticipated dollar value exceeding the Micropurchase Threshold but not exceeding the Simplified Acquisition Threshold . . . for small business concerns when there is a reasonable expectation that offers will be obtained from at least two small business concerns that are competitive in terms of quality and delivery and award will be made at fair market prices.
The Air Force argued that the automatic reservation, which is stated at FAR 19.502-2(a), did not apply because the acquisition was outside the United States and its outlying areas. The Air Force relied on FAR 19.000( b ), which states:
This part [Part 19-Small Business Programs], except for subpart 19.6 [Certificates of Competency], applies only in the United States or its outlying areas. Subpart 19.6 applies worldwide.
The Comptroller General sought the views of the SBA regarding the geographical restriction at FAR 19.000( b ). In its comments, the SBA argued that this regulatory “statement of policy” does not properly implement Small Business Act requirements. Further, the SBA noted that elsewhere the Small Business Act exempts certain provisions from applying outside the United States. Thus, if Congress wanted to place a geographical restriction on § 644(j)(1), it would have done so.
Siding with the Air Force, the Comptroller General stated:
“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.”
This logic suggests that had the FAR Council exempted Kansas City, Missouri, from the application of § 644(j)(1), that would have been okay, too.
The New SBA Regulations
Fast-forward two weeks to October 2, 2013. The SBA issued a final rule amending its regulations governing small business contracting procedures (see 78 FR 61114). 13 C.F.R. § 125.2 was amended as follows:
“(a)…Small business concerns must receive any award (including orders, and orders placed against Multiple Award Contracts) or contract, part of any such award or contract, and any contract for the sale of Government property, regardless of the place of performance, which SBA and the procuring or disposal agency determine to be in the interest of:…”
( c ) Procuring Agency Responsibilities—(1) Requirement to Foster Small Business Participation. The Small Business Act requires each Federal agency to foster the participation of small business concerns as prime contractors and subcontractors in the contracting opportunities of the Government regardless of the place of performance of the contract…”
Although the amended SBA regulation seemingly put to bed the issue of the geographical restriction stated at FAR 19.000( b ), the FAR Council has taken no action to amend the FAR (see “FAR Open Cases Report” at http://www.acq.osd.mil/dpap/dars/far_case_status.html).
Where are We Now?
On July 14, 2014, Latvian Connection, LLC, (Latvian) filed a protest with the Government Accountability Office (GAO) (B-410081.1) of a State Department solicitation for spare and replacement parts for the United States Consulate General in Dubai, United Arab Emirates (Solicitation No. 3458493). One of the bases of the protest was the State Department’s decision to not automatically reserve the acquisition for small business concerns. The Comptroller General sought the views of the SBA. In a letter to the GAO, the SBA explained their position as follows:
“State argues that the GAO decision of Latvian Connection General Trading and Construction LLC, B-408633, Sept. 18, 2013, 2013 CPD ¶ 224, applies here. In that case, GAO ruled that FAR 19.000( b ) limits the application of FAR part 19 (dealing with the SBA’s small business programs) to acquisitions conducted in the United States (and its outlying areas). We believe the basis for GAO’s ruling was that SBA’s regulations were silent on this issue and therefore, the more specific FAR regulation controlled.”
“Heeding this advice, SBA recently promulgated regulations to address this issue. Specifically, SBA made wholesale changes to 13 CFR § 125.2 on October 2, 2013.”
[Letter from SBA to GAO, dtd. 25 August 2014, RE: B-410081 Protest of Latvian Connection, LLC]. The letter went on to reference the changes to 13 CFR § 125.2 shown above. The protest against the State Department solicitation was subsequently dismissed on other grounds.
On December 10, 2014, Latvian filed a protest with the GAO (B-410921) of an Army solicitation for the installation of canopy sunshades on Camp Arifjan, Kuwait (Solicitation No. W912D1-15-R-0004). Again, Latvian argued that the acquisition should have been automatically reserved for small business as required by the Small Business Act and the newly amended SBA regulations. Presumably understanding that they would be fighting a losing battle, the Army amended the solicitation to automatically reserve it for small business concerns and the protest was dismissed. The description block of the amendment contained the following statement:
“The purpose of this amendment is to cancel the solicitation in its entirety and pursue a revised acquisition strategy considering small business set-aside requirements, without regard to Federal Acquisition Regulation (FAR) Part 19.000( b ).”
As it stands, overseas COs and small business concerns seeking overseas contracting opportunities are in a tough spot. Overseas COs must deviate from the FAR to comply with the Small Business Act and SBA regulations. Small business concerns seeking overseas contracting opportunities are dealing with contracting officers that are blissfully ignorant of the changes to the SBA regulations due to the longstanding geographical restriction stated at FAR 19.000( b ). It may take nothing short of a GAO protest to get overseas COs to pay attention to the amended SBA regulations.
The ball is squarely in the FAR Council’s court. It needs to revisit FAR 19.000( b ) in light of the amended SBA regulations. If there is a legal argument for keeping the geographical restriction at FAR 19.000( b ), then the Office of Federal Procurement Policy should issue guidance to that effect to agencies. If there is no legal argument for keeping FAR 19.000( b ), then it should be removed. Sitting back and letting overseas COs and small business concerns fight it out solicitation by solicitation is not fair to either party.