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Why File: A Rule of Two Protest


Koprince Law LLC

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The Rule of Two is the federal contracting rule requiring agencies to set aside a solicitation for competition only between small businesses when there are at least two small businesses that could do the work for a fair price. But that rule does have some exceptions. These exceptions can make it difficult to know the situations that would justify filing a Rule of Two protest. Read on to find out.

First, a primer on SBA’s Rule of Two.

Note that this particular post relates solely to the SBA’s Small Business Rule of Two. The Department of Veterans Affairs has its own Rule of Two for service-disabled veteran owned businesses. For more information on the VA’s SDVOSB Rule of Two, visit our post here.

FAR 19.502-2(a) requires that all acquisitions for supplies or services that have an anticipated dollar value above the micro-purchase threshold ($10,000 at the time of this post) but not over the simplified acquisition threshold or SAT ($250,000 at the time of this post) be set aside for small businesses. That is, unless the contracting officer does not have a “reasonable expectation” that it would receive offers from two or more responsible small businesses that were competitive in terms of fair market prices, quality, and delivery.

The rule in FAR 19.502-2(b), which pertains to acquisitions above the simplified acquisition threshold, is worded a little differently. As noted in the prior paragraph, acquisitions between the micro-purchase threshold but below the SAT must be set aside for small businesses unless the contracting officer does not have a reasonable expectation that it would receive offers from two or more small businesses. In contrast, those over the SAT must be set-aside for small businesses when there is a reasonable expectation that offers will be obtained from at least two responsible small business concerns and award will be made at fair market prices. (In practice, both formulations should typically result in small business set-asides under the same circumstances). However, an acquisition should not be a total small business set-aside unless such a reasonable expectation exists. Otherwise, the acquisition may be partially set-aside under FAR 19.502-3.

This leads us to the question of how a contracting officer will know whether there is a reasonable expectation or not? Well, that is a decision that the contracting agency must make if market research shows at least two small businesses that meet the criteria.

When should you file a Rule of Two protest?

Now that we have the background out of the way, what situations are appropriate to file a Rule of Two protest? Rule of Two protests are filed in situations where the protester believes that a procurement should have been set-aside for small businesses, but it was not, or those in which the protester believes the procurement was improperly set-aside for small businesses, when it should not have been. Simple, right?

In nearly all GAO Rule of Two protests, no matter which way you argue it, the protest will be won if GAO determines that the agency’s basis for its decision is inadequate. Such decisions are generally based on market research. Sometimes market research will include issuing a sources-sought notice, internal meetings, conducting research (generally, online searches looking for capable potential offerors), market surveys, looking back at prior procurements for the same or similar products or services, speaking with small business analysts, and more. Though there is no specific method that must be used in market research, the basic rule is that the decision “must be based on sufficient facts so as to establish its reasonableness.” (See Mountain West Helicopters, LLC). In some capacity, the market research must examine the capabilities of the potential offerors to determine not only whether two or more small businesses will submit offers, but whether they are capable of performing the contract requirements. You can read more about that in this previous SmallGovCon blog post.

Therefore, if your company is a small business that can do the work on a solicitation that is unrestricted, and you know of at least one other company that can do the work, you have the basis of a small business Rule of Two protest.

Other Important Details

Remember how I said that it’s up to the contracting agency to determine whether a small business set-aside is appropriate? Well, in a protest, GAO will not second guess unless there has been an abuse of discretion, which it is up to the protester to show. (See Nordic Sensor Tech., Inc.). Unfortunately, it doesn’t matter if the protester is a small business protesting because it believes that an unrestricted solicitation should have been set aside for small business competition, or whether the protester is a large business protesting the fact that a solicitation is limited to small business offerors only. The requirement that the protester prove a clear abuse of discretion when protesting a set-aside (or unrestricted) solicitation is the same.

GAO has sustained a protest and held that a contracting officer should conduct additional research into the existence of additional firms that could meet the Rule of Two. In that decision, GAO held that an Agency must contact firms that meet requirements of a set-aside if it is aware of any. (See SWR, Inc.).

Additionally, because a protest involving the Rule of Two is an issue with the solicitation, most Rule of Two protests must be filed before bid submissions are due. 4 C.F.R. § 21.2(a)(1). This covers situations when you believe there was a mistake in setting a contract aside, or not setting a contract aside, for a small business. This covers most Rule of Two protests. Therefore, if you think that there was a mistake in setting aside, or not setting aside, a procurement, raise the protest early! Otherwise, you may miss the opportunity.

If you think you may have grounds for a protest, it’s best to act early in the solicitation process.

Questions about this post? Email us. Need legal assistance? Give us a call at 785-200-8919.

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The post Why File: A Rule of Two Protest first appeared on SmallGovCon - Government Contracts Law Blog.

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