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Ruling clouds future for buyers
Experts debate the potential impact of a GAO decision on small-business contracting
Government Accountability Office’s recent ruling that agencies must set
aside some task orders for small businesses could give those firms a
new advantage, some observers say. But others say it remains unclear
how much the ruling will change how agencies do business.
sustained a protest by Delex Systems, which argued that the Navy should
have limited competition for an aviation training products delivery
order to small businesses because at least two small firms could have
The Navy solicited bids through its Training
Systems Contract II, a multiple-award, indefinite-delivery,
indefinite-quantity (IDIQ) contract, which features two small
businesses and six large businesses.
Under the rule of two,
the Federal Acquisition Regulation requires agencies to set aside any
order of more than $100,000 if the agency finds that at least two
qualified small businesses could enter bids. In the Delex case, the
Navy argued that the rule applies to contracts, not task orders. GAO’s
ruling marks the first time the rule of two has been interpreted to
apply to task and delivery orders.
“GAO tipped the playing field
in favor of small-business contract holders,” said Alan Chvotkin,
executive vice president and counsel at the Professional Services
Council. The ruling significantly changes the landscape for agencies’
and contractors’ acquisition strategies, especially for multiple-award
contracts with a mix of small and large companies, he added.
a result of GAO’s decision, program managers and contracting officers
will likely give more weight to small-business set-asides in their
initial acquisition strategies, said Ray Bjorklund, senior vice
president and chief knowledge officer at FedSources.
businesses should capitalize on this opportunity,” said Andy McCann,
vice president and geographic sales leader for EDS’ U.S. Government and
Public Sector business.
A mixed verdict
at this point, many companies are trying to understand how the ruling
will affect them. An executive at a major systems integrator said large
companies were not happy with the ruling, but the outcome depends
heavily on how a contracting officer interprets GAO’s decision.
Integrators might need to adopt new bidding and partnership strategies,
especially on multiple-award contracts that feature large and small
Likewise, the ruling could cause small companies to seek new strategies for working with integrators, McCann said.
ruling creates an incentive for small businesses to strive to be
selected on IDIQ contract vehicles or to team with a large integrator
on an IDIQ contract,” McCann said. It might also encourage companies to
put a greater emphasis on their mentor/protégé programs.
our small-business program, EDS has established and maintained strong
relationships with small businesses and has introduced them to new
business opportunities with EDS,” he said.
Other experts say
GAO’s decision will not give small companies any new advantages. “On
the surface, this may seem to be a benefit to small businesses, but the
price may be too high,” said Guy Timberlake, chief visionary and chief
executive officer at the American Small Business Coalition. Timberlake
said the decision might strain the already tense relationship between
agencies and small businesses.
John Howell, a partner at law
firm Sullivan and Worcester, said any time GAO or Congress institutes a
new requirement, agencies push back, straining their relationships with
Officials and experts agree that the ruling
could widen the rift between government and industry. Already, agencies
and firms are slow to trust one another. Some experts speculated that
agencies now might assume that contractors plan to protest losses and
even factor the costs of pursuing those protests into their bids,
raising the costs to government.
The cost of doing business
Harvey, the Army’s deputy program executive officer for enterprise
information systems, said fewer companies protested award decisions a
decade ago because they wanted to avoid making a fuss and preferred to
maintain good relationships with the government. However, today’s
larger orders make people want to protest, he said. Companies have more
Companies that don’t file frequent protests might
still be tarnished by agencies’ perception that contractors in general
do so, Timberlake said.
“The business of doing business with
the government today is so overwhelmingly out of focus that, in my
opinion, we’re no longer looking at the true picture of industry and
government partnering,” Timberlake said.
Earlier this year,
Congress gave GAO the authority to hear task-order protests because
they have become so complex and widely used that they are now the
equivalent of what full contracts are, experts say. Agencies have been
using task orders for more than half of their procurements in recent
years, compared with 14 percent in 1990. In the 1990s, the government
viewed task orders as distinct from contracts and put those orders
outside GAO’s jurisdiction.
GAO will keep its new authority to
review task-order protests for three years. Legislators plan to
evaluate the effects before then and make any necessary changes.
In the meantime, GAO’s recent ruling could change how agencies view orders and contracts.
of these multiple-award opportunities might be issued as full-and-open
[competitions] with no set-aside components, creating a more
prohibitive competition environment for the average small business,”
Harvey recently predicted that agencies would
take that course in the near future. He said agencies, particularly
those under pressure to buy what they need quickly, might resort to the
Big Bang theory of procurement: one competition for one big contract.
agreed that agencies will likely reassess the use of multiple-award
contracts in light of GAO’s Delex ruling. They will probably ask
themselves why they should go through the hassle of awarding an IDIQ
and then go through another competition for task orders, he said.
However, some experts say GAO’s decision won’t affect multiple-award contracts that separate small and large businesses.
ruling will have little effect on NASA’s Solutions for Enterprisewide
Procurement, a governmentwide acquisition contract, said Joanne Woytek,
NASA’s SEWP program manager. SEWP is organized into four groups of
multiple-award contracts. Two are for small businesses, with one of the
two set-asides for small companies owned by service-disabled veterans.
The other two are primarily for large businesses, though a few small
businesses are in the mix.
Woytek said the ruling might affect a
few orders in the groups that lack set-asides, but the small companies
in those groups are generally winning orders when they submit a
“We have always encouraged contracting officers
to provide a small-business preference, and now it will be more
targeted if two of the small companies in the open groups can and want
to provide a reasonable quote,” she said.
Whether or not the ruling offers an advantage to small businesses, it has left the contracting community in limbo.
decision changes the rules of engagement” and leaves new questions
unanswered, Chvotkin said. “It changes procurements midstream.”
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rule of two