New Acquisitions of supplies or services with an anticipated dollar value exceeding $3,500, but not over $150,000 are automatically reserved exclusively for small business concerns unless the contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of market prices, quality, and delivery. FAR § 19.502-2(a). The provisions of section 19.202-2 of the FAR generally require contracting officers, before issuing solicitations, to make “every reasonable effort to find additional small business concerns” and to maximize small business participation.

As a general matter, we regard such a determination as a matter of business judgment within the contracting officer’s discretion that we will not disturb absent a clear showing that it was unreasonable. See Neal R. Gross & Co., Inc., B-240924.2, Jan. 17, 1991, 91-1 CPD ¶ 53 at 2. In this regard, we have found unreasonable the determination to issue a solicitation on an unrestricted basis where that determination is based upon outdated or incomplete information. McSwain & Assocs., Inc. et. al., B‑271071 et al., May 20, 1996, 96-1 CPD ¶ 255 at 2-4; DNO Inc., B-406256, B‑406256.2, Mar. 22, 2012, 2012 CPD ¶ 136 at 4; Information Ventures, Inc., B‑279924, Aug. 7, 1998, 98-2 CPD ¶ 37 at 3. The use of any particular method of assessing the availability of small businesses is not required, and measures such as prior procurement history, market surveys and/or advice from the agency’s small business specialist and technical personnel may all constitute adequate grounds for a contracting officer’s decision not to set aside a procurement. American Imaging Servs., Inc., B‑246124.2, Feb. 13, 1992, 92-1 CPD ¶ 188 at 3. Nonetheless, the assessment must be based on sufficient facts so as to establish its reasonableness. Safety Storage, Inc., supra.

Based on our review of the contemporaneous record, we sustain this protest allegation because the agency’s determination not to set aside CLINs 0004 and 0009 was based on incomplete information. In this regard, we reviewed DLA’s small business coordination record, and confirmed that the agency’s market research failed to consider the fact that CLINs 0004 and 0009 were valued at between $3,500 and $150,000. DD Form 2579 at 1-8. Rather, as set forth above, the agency used the aggregated estimated value of all 10 CLINs to support its determination that it was not necessary to set aside any of the CLINs under the RFP for small businesses. Id. at 1. Using the aggregated estimated value of all 10 CLINs, which was well over $150,000, DLA determined that “[p]ursuant to FAR 19.502‑2(c), this procurement does not meet the criteria for a total small business set‑aside because, in accordance with the non‑manufacturer rule, any concern proposing to furnish a product that it did not itself manufacture must furnish the product of a small business manufacturer.” Id. at 3. Based on the agency’s belief that the nonmanufacturing rule applied to all 10 CLINs, DLA went on to conclude that there was “no reasonable expectation that offers [would] be obtained from at least two (2) small business concerns offering products, at a fair and reasonable price, of small refineries for these line items.” Id.

As discussed above, we defer to SBA’s conclusion that “[t]he nonmanufacturer rule would not apply to small business set‑aside line items whose value is between the micropurchase threshold and the simplified acquisition threshold,” and that each contract line item under this solicitation is “subject to the traditional Rule of Two [analysis] in FAR section 19.502-2.” SBA Supp. Comments at 3. Accordingly, the contemporaneous record establishes that DLA failed to apply this information to its small business set aside determination. In this regard, the contracting officer’s determination that the nonmanufacturer rule did not apply to any of the CLINs, and subsequent decision to not set aside CLINs 0004 and 0009 for small businesses, was based on incomplete information, and so we sustain this protest allegation. DNO Inc., supra.  (AeroSage, LLC B-416381: Aug 23, 2018)

New On February 24, 2016, Precision Asset Management Corporation filed a post-award bid protest at the U.S. Court of Federal Claims (COFC) challenging HUD's award of a property management contract to Alpine/First Preston JV II for the services at issue here. This procurement, referred to as the 3.7 procurement, covered geographic area 3A, which encompasses the state of Illinois. On November 9, 2017, the COFC granted Precision's protest, and ordered that to secure these services in area 3A after May 31, 2018, the agency must either reopen the procurement, conduct meaningful discussions, and re-evaluate proposals in accordance with its decision, or issue a new solicitation. Precision Asset Mgmt. Corp. v. United States, 135 Fed. Cl. 342 (2017).

(section deleted)

Under Federal Acquisition Regulation (FAR) § 19.502-2(b) (commonly referred to as the "rule of two" requirement), 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 award will be made at a fair market price. FAR § 19.502-2(b); SEK Solutions, LLC, B-406939.2, Feb. 27, 2014, 2014 CPD ¶ 87 at 7; Metasoft, LLC, B-402800, July 23, 2010, 2010 CPD ¶ 170 at 2. An agency must undertake reasonable efforts to ascertain whether it is likely that it will receive offers from at least two responsible small businesses capable of performing the work in question. FAR § 19.202-2; EMMES Corp., B-402245, B-402245.2, Feb. 17, 2010, 2010 CPD ¶ 53 at 5; Rochester Optical Mfg. Co., B-292247, B-292247.2, Aug. 6, 2003, 2003 CPD ¶ 138 at 4. No particular method of assessing the availability of capable small businesses is required; rather, the assessment must be based on sufficient facts so as to establish its reasonableness. See, e.g., SEK Solutions, LLC, supra; EMMES Corp., supra. Our Office will review a protest to determine whether a contracting officer has made such efforts. DNO Inc., B-406256, B-406256.2, Mar. 22, 2012, 2012 CPD ¶ 136 at 4.

The agency argues that its market research was sufficient under the circumstances and notes that this solicitation contained a unique requirement, a 45-day transition period. HUD explains that, in an effort to comply with the COFC's order, it abbreviated the transition period in the solicitation to 45 days, while acknowledging that transition periods in asset manager solicitations generally range from 90-120 days. AR, Tab 27, 3.76 Market Research Report (May 10, 2018) at 130. The agency viewed a potential offeror's ability to meet this transition period requirement as "critical" because the successful contractor would be required to have an office, staffing, and financial backing sufficient to be fully operational in a relatively short time period. Id. at 129-130.

Due to this unique requirement and the fact that this is a reprocurement of the 3.7 procurement, the agency states that it reasonably considered in its market research only the offerors in the 3.7 competitive range for area 3A, and requested capability statements from all of those firms, except for Alpine/First Preston JV II, the incumbent for which it possessed information. Further, HUD considered two additional woman-owned small businesses, Alpine Companies and another firm. Regarding the protester's point that the agency set aside a solicitation for the same services in a different region, the agency responds that the other solicitation is not relevant for resolving this protest because the 3.75 asset manager requirement in the other solicitation encompassed different geographic areas. COS/MOL at 4. The agency further states that the HUD's Office of Small and Disadvantaged Business Utilization concurred with the contracting's officer's determination to issue this solicitation as unrestricted. COS/MOL at 10 citing AR, Tab 27, 3.76 Market Research Report (May 10, 2018) at 129.

Our review of the record shows that HUD, as part of its market research, considered the offerors in the 3.7 competitive range for area 3A, as well as Alpine Companies and another woman-owned small business, in considering whether it could reasonably expect to receive proposals from two or more small businesses that could provide all of the requirements of the solicitation. While Alpine Companies disagrees with the scope of the agency's market research and the agency's decision not to issue a sources sought notice on the FBO website, we find reasonable the agency's actions as our Office has previously found that no particular method of assessing the availability of capable small businesses is required. See, e.g., SEK Solutions, LLC, supra; EMMES Corp., supra. Regarding the protester's allegation that HUD previously issued an asset manager solicitation in a different geographic region as a small business set aside, Alpine Companies failed to explain how the market research related to that region is relevant to the agency's current market research in area 3A. In this regard, the protester has failed to identify any small business that was considered small at the time the agency completed its market research that the agency's market research in area 3A overlooked. Accordingly, we find that the scope of the agency's market research was reasonable.

Alpine Companies next challenges the agency's findings with regard to its capability. As stated above, based on its market research, the agency concluded that only one small business, Alpine/First Preston JV II, was capable of performing this requirement. Thus, the agency determined that the RFP should not be set aside for small businesses because there was no evidence that two or more small businesses could perform all of the statement of work requirements. Alpine Companies argues that the agency failed to properly consider its capabilities because it relied on outdated information in researching its conclusion and ignored the fact that in 2017 HUD awarded Alpine Companies a large contract, as a prime contractor. Comments at 4.

The agency responds that Alpine Companies' 2017 contract concerned property management services--such as maintenance and preservation, property inspection, physically securing properties, and performing cosmetic enhancements and repairs--while the 3.76 requirement, at issue here, primarily requires contractors to market and sell properties and is not similar to the 2017 contract requirements. Supp. AR at 2. Additionally, HUD argues that even if the agency had determined that Alpine Companies was a capable small business offeror, such that Alpine Companies and Alpine/First Preston JV II were both capable small businesses, the rule of two requirements would still not have been met because the two companies share common ownership and the agency did not find any additional capable small businesses. COS/MOL at 8; AR, Tab 27, 3.76 Market Research Report (May 10, 2018) at 138. Consequently, the agency argues, there was no expectation that an award would be made at a fair market price. Id.

After considering HUD's response, our Office solicited the views of the Small Business Administration (SBA). The SBA reviewed the entire record in camera and questioned the reasonableness of HUD's determination regarding the capability of Alpine Companies, but ultimately concluded that expecting only commonly owned firms to submit offerors, would not reasonably support an expectation of price competition. In sum, the SBA concluded that it did not "find it unreasonable for the agency to determine that it lacked a reasonable expectation of receiving offers from two or more small businesses and that award would be made at a fair market price." SBA Review (Aug. 14, 2018) at 4-5.

Based on the record here, we agree with HUD and the SBA. Our Office has previously found reasonable an agency's determination that companies with common ownership and knowledge of each other's pricing cannot be expected to submit independent prices so that award can be made at a fair and reasonable price. AeroSage LLC, B-414314, B-414314.2, May 5, 2017, 2017 CPD ¶ 137; recon. denied, AeroSage LLC--Recon., B-414314.3, July 24, 2017, 2017 CPD ¶ 232. Under these similar circumstances, we will not question the contracting officer's judgment that the agency did not have a reasonable expectation that it would receive two or more offers from at least two responsible small businesses capable of performing the work in question at a fair market price.  (Alpine Companies, Inc. B-416104.2: Aug 23, 2018)

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.

The agency describes the procedures DLA followed to determine whether there were small business sources that could satisfy this requirement, and asserts that its market research was adequate to support the decision not to set aside the entire procurement for small businesses. Supp. AR at 2. DLA notes that its market research included issuing a sources-sought notice, holding internal meetings, and conducting internet research. Id. Relying on the results of this research, the agency stated that it did not have a reasonable expectation of receiving offers from any responsible small businesses that supply the products of small business refineries. Id. at 3. Lacking a reasonable expectation that two or more small businesses would respond to the solicitation, the agency determined not to set the procurement aside for small businesses. Id.

DLA's decision not to set aside the entire procurement for small business competition is unobjectionable here. The record supports that the agency sought out small businesses that either manufacture the required fuels or supply fuels manufactured by small businesses. The acquisition strategy, based on the results of the market research, was coordinated with the agency's small business director and an SBA procurement center representative, both of whom concurred with the decision not to set the entire procurement aside for small business participation. See DD Form 2579, Small Business Coordination Record. The protester has not shown that it was unreasonable for the agency to conclude that the rule of two was not satisfied here. We therefore deny this ground of protest.

AeroSage also challenges the amended waiver of the nonmanufacturer rule issued by the SBA. The protester argues that the agency should not have sought to amend the earlier waiver, which exempted the entire procurement from the nonmanufacturer rule. Protest at 1.

Ordinarily, in order to qualify as a small business to provide manufactured products or other supply items for a procurement assigned a manufacturing NAICS code, an offeror must be the manufacturer or producer of the end item being procured. 13 C.F.R. § 121.406(a)(1). If the offeror does not manufacture or produce the item being purchased, the nonmanufacturer rule provides that the offer of a nonmanufacturer small business concern can be considered, provided, among other things, the small business offeror represents that it will supply the product of a domestic small business manufacturer or producer; or where a waiver of this requirement is granted by the SBA. 15 U.S.C. § 637(a)(17); 13 C.F.R. § 121.406(b).

Our Bid Protest Regulations require that a protest include a detailed statement of the legal and factual grounds for the protest, and that the grounds stated be legally sufficient. 4 C.F.R. §§ 21.1(c)(4), (f). These regulations contemplate that protesters will provide, at a minimum, either allegations or evidence sufficient, if uncontradicted, to establish the likelihood that the protester will prevail in its claim of improper agency action. Id.

Here, the record shows that DLA sought, and was granted, a waiver of the nonmanufacturer rule for those CLINs that were set aside for SDVOSBs. See AR, Tab 6, Request for Waiver of Nonmanufacturer Rule for VA Line Items; AR, Tab 7, Amended SBA Waiver. As the remaining CLINs were not reserved for small businesses, the nonmanufacturer rule simply does not apply. We therefore dismiss this allegation for failing to state a valid basis of protest.

The protest is denied.  (AeroSage, LLC B-414917: Oct 17, 2017)

Synchrogenix asserts that the agency must cancel the RFP. The firm argues that the agency no longer has a reasonable expectation that it will receive two offers from small businesses, and thus the agency is required to withdraw the set-aside. The protester further argues that continuing with the procurement here, where the agency can expect to receive only one offer, constitutes an improper sole-source to Lorenz. While we do not specifically discuss each of the protester's arguments, we have considered all of them and find that none provides a basis to sustain the protest.

Under Federal Acquisition Regulation (FAR) § 19.502-2(b) (commonly referred to as the "rule of two" requirement), 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 award will be made at a fair market price. In assessing the availability of small business concerns, the FAR requires that the contracting officer must "[b]efore issuing solicitations, make every reasonable effort to find additional small business concerns . . . ." FAR § 19.202-2(a).

As a preliminary matter, we note that the protester is not challenging the agency's initial decision to issue the solicitation as a set-aside for small businesses. Rather, the protester is contending that under the facts here--where "full new proposals" are requested and where the agency knows that its request for new proposals will not result in offers from two small businesses--the agency cannot continue the procurement as a small business set-aside. However, the protester points to no statute or regulation that requires such a result. In a comment submitted to our Office, the Small Business Administration (SBA) explains, and we agree, that

[t]here is no requirement in the Small Business Act, the FAR, or SBA regulations, that an agency must redo its market research regarding the "rule of two" prior to requesting revised or newly submitted proposals during the course of a procurement or altogether cancel the solicitation if it becomes aware that only one responsible small business offer will be received in response to an amended solicitation.

SBA Comments at 4. While the protester asserts that changed circumstances should result in a requirement that the agency revisit its determination, there is nothing that requires the agency to do so. In this regard, the "rule of two" anticipates a prospective determination made prior to the issuance of a solicitation. Once the solicitation has been issued, and the agency has properly complied with the FAR's "rule of two," the agency is not required to revisit this determination during the course of a procurement.

The SBA further explains that it is not uncommon that an agency becomes aware, over the course of the procurement, that it will receive only one revised offer from a small business concern. Id. at 5. For example, small business offerors may drop out of a competition for a variety of reasons, including losing a size protest, failing to be placed in a competitive range, or as the result of a GAO protest, such that there is only one responsible small business offeror remaining. Id. at 4-5. In such circumstances, the agency may make award to that firm, provided award will be made at a fair market price. We find no reason to conclude that, just because the agency is aware that only one offeror will be submitted in response to the solicitation, the agency is required to cancel the set-aside.

The protester also argues that the agency's actions have resulted in a de facto sole-source procurement. In this regard, the protester alleges that the agency knew before the due date of proposals that there would be only one responsive proposal, and yet the agency intends to proceed with the procurement, which, according to the protester, constitutes an improper sole source. We disagree. In essence the protester is asserting that the solicitation should be cancelled and new proposals should be solicited on an unrestricted basis because the agency is aware that only one proposal will be received; however, as explained above, the agency's market research was conducted prior to the issuance of the solicitation, and the agency concluded it had a reasonable expectation that offerors would be received from two or more small businesses. The fact that, during the course of the procurement, one of the two small business offerors is no longer capable of submitting a revised proposal, does not mean the procurement should be viewed as a de facto sole-source procurement.  (Synchrogenix Information Strategies, LLC B-414068.4: Sep 8, 2017)

InfoReliance challenges the agency’s decision to set aside the procurement for small business concerns. Specifically, the protester alleges that the requirement here--[Amazon Web Services] AWS cloud computing services--is not one that any small business will be able to perform while complying with the limitation on subcontracting. InfoReliance argues that the contracting agency therefore lacked a reasonable basis for concluding, in accordance with FAR § 19.502-2(b), that two or more responsible small business concerns could provide the required services while complying with such subcontracting limitations. Protest at 3.

The FAR provides that, although the preference programs of FAR part 19 are generally not applicable to procurements under the FSS procedures of FAR subpart 8.4, an agency may, in its discretion, set aside orders or BPAs for any of the small business concerns identified in FAR § 19.000(a)(3). FAR § 8.405-5(a)(1); see Aldevra, B-411752, Oct. 16, 2015, 2015 CPD ¶ 339 at 4 (holding that FAR § 19.502-2 does not apply when placing orders under the FSS program); Encompass Group, LLC, B-410726, Feb. 2, 2015, 2015 CPD ¶ 93 at 3-4; Swank Healthcare, supra; see also FAR § 19.502-4(c). Here, the record shows that the BOP exercised this discretion to set aside the RFQ for small businesses, after identifying at least eight small business concerns holding FSS contracts that could perform this work. Moreover, the BOP received a quotation from one apparently responsible small business in response to the RFQ. See Swank Healthcare, supra; York Int’l Corp., B-244748, Sept. 30, 1991, 91-2 CPD ¶ 282 at 7 (receipt of offers from small businesses supports an agency’s determination to set aside a procurement for small businesses). Although InfoReliance disagrees with the agency’s decision to set aside this FSS procurement for small businesses, it fails to show that the agency violated any law or regulation in doing so.

InfoReliance also complains that the BOP did not verify each small business concern’s responsibility prior to making its set-aside decision.[8] Protest at 3. There is no merit to this complaint. Agencies need not make either actual determinations of responsibility or decisions tantamount to determinations of responsibility in determining whether to set aside a procurement. See, e.g., Swank Healthcare, supra; Ceradyne, Inc., B-402281, Feb. 17, 2010, 2010 CPD ¶ 70 at 4. Rather, agencies need only make an informed business judgment that there are small businesses expected to submit offers that are capable of performing. Marshall & Swift-Boeckh, LLC, supra, at 4; ViroMed Labs., B-298931, Dec. 20, 2006, 2007 CPD ¶ 4 at 3-4.

Lastly, InfoReliance argues that because no small business concern will be able to comply with the limitation on subcontracting for the required AWS cloud services, no BPA may be issued when statutory requirements will be violated. Protest at 4. This argument, however, puts the cart before the proverbial horse: an agency’s determination whether a small business concern will comply with a solicitation’s subcontracting limitation is to be made as part of the award decision, and based on the particular quotation submitted. See Geiler/Schrudde & Zimmerman, B-412219 et al., Jan. 7, 2016, 2016 CPD ¶ 16 at 8; Sealift, Inc., B-409001, Jan. 6, 2014, 2014 CPD ¶ 22 at 4.  (InfoReliance Corporation B-413298: Sep 19, 2016)

An acquisition for the type of goods and services sought here, with an anticipated dollar value of more than $150,000, must be set aside for small business concerns if the agency determines there is a reasonable expectation that offers will be submitted by two or more small businesses that are offering products manufactured by small business concerns. FAR §§ 19.502-2(b), (c). In this regard, our Office will review a protest of an agency determination not to set aside a procurement to determine whether a contracting officer has undertaken reasonable efforts to ascertain the availability of capable small businesses. Manus Medical LLC, B‑412331, Jan. 21, 2016, 2016 CPD ¶ 49 at 3.

Here, our review of the record confirms that the agency conducted adequate and meaningful market research to determine whether there was a reasonable expectation that two or more small businesses possessed the capability to manufacture the products sought. See AR, Tab 4, Jarvis Gym Equipment Sources Sought, at 1; Tab 5(b), Jarvis Gym Market Research Memorandum, at 1; Tab 10(b), Dodge and Jarvis Gym Market Research Memorandum, at 1. The Air Force’s market research consisted of online internet searches and was based on information received in response to the agency’s June 3 sources sought synopsis. AR, Tab 10(b), Dodge and Jarvis Gym Market Research Memorandum, at 1. Only three small businesses responded to the sources sought synopsis, and only one of those respondents was a SDVOSB. AR, Tab 5(b), Jarvis Gym Market Research Memorandum, at 1. None of the respondents were small business manufacturers of fitness equipment. Id.

The agency’s market research also took into consideration information from proposals received in response to RFP-0189 and RFP-0057. AR, Tab 10(b), Dodge and Jarvis Gym Market Research Memorandum, at 1. Only two small businesses submitted proposals in response to the cancelled solicitations, and only one was a manufacturer of fitness equipment. Id. Additionally, the agency represents that it conducted a search of the Small Business Administration’s Dynamic Small Business Search website. Legal Memorandum at 3.

Based on all this information, the CO concluded that there was not a reasonable expectation that proposals would be submitted by two or more small business manufacturers, or small businesses offering products manufactured by small business concerns. On this record, we find no merit to the protester’s allegation that the solicitation should have been set aside for small businesses or SDVOSBs.

The protest is denied.  (Latvian Connection, LLC B-412701: Apr 22, 2016)  (pdf)

Aldevra contends that there are multiple small businesses, including several holding FSS contracts, capable of providing the desired item. Accordingly, the protester argues, section 15(j) of the Small Business Act, 15 U.S.C. § 644(j), dictates that the contemplated order be set aside for small businesses. This section provides in relevant part as follows:

(1)Each contract for the purchase of goods and services that has an anticipated value greater than $2,500 but not greater than $100,000[1] 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.

15 U.S.C. § 644(j)(1). This set-aside mandate has been implemented under Federal Acquisition Regulation (FAR) § 19.502-2, Total small business set-asides. The gist of the protester’s argument, which is supported by the Small Business Administration (SBA), is that because the above order has a value between $3,000 and $150,000, § 644(j) requires that it be set aside for small businesses unless market research establishes that competitive offers from two or more small businesses cannot reasonably be expected. As explained below, we disagree.

In 2010, Congress amended the Small Business Act to address small business set‑asides under multiple award contracts. Specifically, section 1331 of the Small Business Jobs Act of 2010, Pub. L. 111-240 (hereinafter, the Jobs Act), added the following provision to section 15 of the Small Business Act:

(r) MULTIPLE AWARD CONTRACTS.—Not later than 1 year after the date of enactment of this subsection, 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—
(1) set aside part or parts of a multiple award contract for small business concerns, including the subcategories of small business concerns identified in subsection (g)(2);
(2) notwithstanding the fair opportunity requirements under section 2304c(b) of title 10, United States Code, and section 303J(b) of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 253j(b)),[41 U.S.C. § 253j has subsequently been recodified as 41 U.S.C. § 4106] set aside orders placed against multiple award contracts for small business concerns identified in subsection (g)(2); and
(3) reserve 1 or more contract awards for small business concerns under full and open multiple award procurements, including the subcategories of small business concerns identified in subsection (g)(2).

The committee report accompanying the underlying Senate bill, S. Rpt. 111-343, explained that while the Small Business Act and the Federal Acquisition Regulation required federal agencies to set contracts aside for small businesses where there was a reasonable expectation of reasonably priced bids from two or more small businesses, “these general set-aside requirements have been interpreted not to apply to multiple-award contracts;” thus, the Senate bill “provided clear direction” to contracting officers by authorizing small business set-asides in multiple-award contracts. S. Rpt. 111-343 at 7.

On November 2, 2011, the Department of Defense, GSA, and NASA (at the request of the officials identified in subsection (r)) issued an interim rule amending sections of FAR Parts 8, 12, 16, 19, 38, and 52 to implement section 1331 of the Jobs Act. 76 Fed. Reg. 68032. Of particular relevance to the protest here, FAR Subpart 8.4, which sets forth the provisions and procedures for placing orders under the FSS program, was amended to provide that while the socio-economic programs set forth under FAR part 19 are not mandatory when placing orders under the FSS program, contracting officers are vested with the discretion to set aside orders for small business concerns. Specifically, FAR § 8.405-5(a)(1)(i) was revised as follows:

(a)Although the preference programs of part 19 are not mandatory in this subpart, in accordance with section 1331 of Public Law 111-240 (15 U.S.C. 644(r))—

(1)Ordering activity contracting officers may, at their discretion—

(1) Set aside orders for any of the small business concerns identified in 19.000(a)(3).

Also of relevance, FAR part 19, which implements the acquisition-related sections of the Small Business Act, was amended to establish that contracting officers are vested with the discretion to set aside orders placed under the FSS program and all other multiple award contracts. Specifically, FAR § 19.502-4(c) was revised as follows:

In accordance with section 1331 of Public Law 111-240 (15 U.S.C. 644(r)) contracting officers may, at their discretion—

* * * * *

(c) Set aside orders placed under multiple award contracts for any of the small business concerns identified in 19.000(a)(3). For orders placed under the Federal Supply Schedules Program see 8.405-5. For all other multiple award contracts see 16.505.

On October 2, 2013, SBA revised its own regulations to implement section 1331 of the Jobs Act. 78 Fed. Reg. 61114. As relevant here, 13 C.F.R. § 125.2(e)(1) provides the following general summary pertaining to small business set-asides under multiple-award contracts:

(e) Multiple Award Contracts.
(1) General
(i) The contracting officer must set-aside a Multiple Award Contract if the requirements for a set-aside are met. This includes set-asides for small businesses, 8(a) Participants, HUBZone SBCs, SDVO SBCs, WOSBs or EDWOSBs.
(ii) The contracting officer in his or her discretion may partially set-aside or reserve a Multiple Award Contract, or set aside, or preserve the right to set aside, orders against a Multiple Award Contract that was not itself set aside for small business. The ultimate decision of whether to use any of the above-mentioned tools in any given procurement action is a decision of the contracting agency.
(iii) The procuring agency contracting officer must document the contract file and explain why the procuring agency did not partially set-aside or reserve a Multiple Award Contract, or set-aside orders issued against a Multiple Award Contract, when these authorities could have been used.

(Underline added.) In issuing the final rule, the SBA explained as follows:

Of particular note, the final rule, like the proposed rule, preserves the discretion that section 1331 vests in agencies to decide whether or not to use any of the enumerated set-aside and reserve tools. There is nothing in the rule that compels an agency to award a multiple award contract with a partial set-aside, contract reserve, or contract clause that commits (or preserves the right) to set aside orders when the “rule of two” is met. The rule only requires that agencies consider these tools before awarding the multiple award contract and, if they choose not to use any of them, document the rationale. Agencies have the discretion to forego using the section 1331 tools even if the requirements could be met; they simply need to explain how their planned action is consistent with the best interests of the agency and the agency’s overarching responsibility to provide maximum practicable opportunities for small businesses . . .

78 Fed. Reg. 61116.

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 for contracts valued between $2,500 and $100,000, set forth under section 644(j), and 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. Moreover, the regulatory provisions implementing this statutory provision (FAR § 8.405-5(a)(1)(i) and FAR § 19.502-4(c)) establish that the small business rules set forth under FAR Part 19, which includes FAR § 19.502-2, are not mandatory, and instead afford contracting officers with the discretion to set aside orders under the FSS program.

In reaching our conclusion we recognize that it is a basic canon of statutory construction that each section of a statute should be construed in a manner that produces a harmonious whole. Ashland Sales & Serv. Co., B-401481, Sept. 15, 2009, 2009 CPD ¶ 186 at 5. We further recognize that in its submission to our Office pertaining to this protest, SBA argued that the most reasonable manner in which to harmonize sections 644(j) and (r) is to read section (j) as requiring that all FSS orders with values in the specified range be set aside unless market research shows that competitive offers from two or more small businesses cannot be expected, and to read section (r) as merely creating an exception to the requirement in 10 U.S.C. § 2304c(b) (and 41 U.S.C. § 4106) that all multiple-award contract holders be given a fair opportunity to compete for orders. According to SBA, a contrary interpretation would effectively repeal section 644(j) by implication. We disagree.

First, SBA’s repeal by implication argument is misplaced since the application of section 644(r), by its terms, and as implemented through the regulations noted above, is limited to multiple-award contracts and orders placed under such contracts. Thus, to the extent the set-aside requirement of section 644(j) is understood as not applying to orders under multiple-award contracts, section 644(j) would continue to have full application to all other types of contracts. Accordingly, just as the SBA would seek to harmonize the provisions at issue by interpreting section 644(j) as carving out an exception with respect to section 644(r), an equivalent harmony can be achieved by changing the direction of the exception; that is, by properly understanding section 644(r) as having carved out a limited exception with respect to section 644(j) for orders under multiple-award contracts.

Our interpretation in this regard is further bolstered by the second problem with SBA’s position. That is, SBA’s reading of the two provisions is at odds with the regulatory framework adopted to implement section 644(r). As noted above, FAR § 19.502-2 expressly provides that the small business provisions of the FAR, to include the provision implementing section 644(j), are not mandatory. Accordingly, the regulations have essentially established section 644(r) as an exception to section 644(j) where orders under the FSS are concerned, thereby providing a harmonious application of the two sections. Third, we note that the interpretation set forth by SBA is at odds with its own regulations; specifically, 13 C.F.R. § 125.2(e), quoted above, which establishes, without identifying any exception, that it is within a contracting officer’s discretion whether to set aside an order against a multiple-award contract that was not itself set aside for small business.

Because the record fails to support the protester’s contention that the Army violated 15 U.S.C. § 644(j) by failing to set aside the contemplated FSS order here for small business competition, we deny Aldevra’s protest.  (Aldevra B-411752: Oct 16, 2015)  (pdf)

Rice alleges that the agency improperly failed to set aside the procurement for small businesses. The firm contends that the agency’s review of its capability is inaccurate and does not support the determination to issue the solicitation on an unrestricted basis.

Acquisitions with an anticipated dollar value of more than $150,000, such as here, 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. The use of any particular method of assessing the availability of small businesses is not required so long as the agency undertakes reasonable efforts to locate responsible small business competitors. Federal Acquisition Regulation (FAR) § 19.502-2(b); Information Ventures, Inc., B-400604, Dec. 22, 2008, 2008 CPD ¶ 232 at 3. The decision whether to set aside a procurement may be based on an analysis of factors such as the prior procurement history, the advice of appropriate small business specialists, and market surveys that include responses to sources sought announcements. Commonwealth Home Health Care, Inc., B‑400163, July 24, 2008, 2008 CPD ¶ 140 at 3.

In determining the availability of responsible small business concerns for set-aside purposes, expressions of interest from small businesses are not necessarily determinative; an agency’s investigation is to consider not only the existence of the small businesses, but also their capability to perform the contract. Information Ventures, Inc., B-279924, Aug. 7, 1998, 98-2 CPD ¶ 37 at 3. Since the determination of whether there is a reasonable expectation of receiving offers from two or more small businesses that are capable of performing the required work is a matter of business judgment within the contracting officer’s discretion, we will not disturb it absent a showing that it was unreasonable. ViroMed Labs., B-298931, Dec. 20, 2006, 2007 CPD ¶ 4 at 3-4.

We have reviewed each of the protester’s allegations and conclude that none provides a basis to question either the adequacy of the market research or the reasonableness of the agency’s determination to conduct the procurement on an unrestricted basis. To the extent Rice contends that the presence of two small businesses at the site visit should have placed the agency on notice of small business interest in the requirement, the determinative issue is not whether the agency was on notice of small business interest in the requirement; rather, as noted above, it is whether the agency was aware of interest on the part of small businesses capable of performing the work, which mere presence at the site visit fails to establish.

Further, while, in its comments on the agency report, the protester challenges the agency’s conclusion regarding its own lack of relevant experience, Rice does not dispute the agency’s findings pertaining to the lack of experience of any other small business source. As a result, regardless of the reasonableness of the agency’s conclusions regarding the protester’s relevant experience, Rice has failed to demonstrate that the contracting officer lacked a reasonable basis for concluding that offers from at least two capable small businesses could not reasonably be expected.  (Rice Services, Inc. B-411540, B-411540.2: Aug 20, 2015)  (pdf)

For the reasons discussed below, we conclude that the agency’s market research was insufficient to support the agency’s conclusion that it would receive viable quotations from at least two responsible small business concerns. We therefore find that the agency’s reliance on the market research in deciding to restrict the RFQ to small businesses was unreasonable.

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 award will be made at a fair market price. No particular method of assessing the availability of capable small businesses is required; rather, the assessment must be based on sufficient facts so as to establish its reasonableness. Mountain W. Helicopters, LLC; Trans Aero, Ltd., B-408150, B-408150.2, July 1, 2013, CPD ¶ 152 at 2, 3. 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. Commonwealth Home Health Care, Inc., B‑400163, July 24, 2008, 2008 CPD ¶ 140 at 3.

A contracting agency’s investigation to determine the availability of responsible small business concerns for set-aside purposes, however, must address not only the existence of small businesses that might submit proposals, but also their capability to perform the contract; the fact that multiple small businesses are identified in the course of market research is not necessarily determinative. See The Protective Grp., Inc., B‑310018, Nov. 13, 2007, 2007 CPD ¶ 208 at 3. In this regard, we have held that the contracting officer must make reasonable efforts to ascertain whether it is likely that offers will be received from at least two small businesses capable of performing the work. DNO Inc., B-406256, B‑406256.2, Mar. 22, 2012, 2012 CPD ¶ 136 at 4; Information Ventures, Inc., B‑279924, Aug. 7, 1998, 98-2 CPD ¶ 37 at 3 (stating that the contracting agency’s investigation goes not only to the existence of the businesses, but also to their capability to perform the contract).

As relevant here, in order to qualify as a small business concern to provide manufactured products or other supply items, an offeror must either be the manufacturer or producer of the end item being procured, or if it does not manufacture the item being purchased, the offeror must comply with what is known as the nonmanufacturer rule. 13 C.F.R. § 121.406(a). The nonmanufacturer rule provides that the offer of a nonmanufacturer small business concern can be considered, provided, among other things, that the small business concern represents that it will supply the product of a domestic small business manufacturer or processor, or that a waiver of this requirement is granted by the SBA. 15 U.S.C. § 637(a)(17); see also 13 C.F.R. § 121.406.

Whether the nonmanufacturer rule should be included in a procurement set aside for small businesses primarily depends on the NAICS code assigned to the procurement by the procuring agency. See BlueStar Energy Solutions, B-405690, Dec. 12, 2011, 2011 CPD ¶ 275 at 3. In this regard, “[t]he nonmanufacturer rule applies only to procurements that have been assigned a manufacturing or supply NAICS code.” 13 C.F.R. § 121.406(b)(2)(C)(ii)(3); see FAR § 19.303(a)(2) (“A concern that submits an offer or [quotation] for a contract where the NAICS code assigned to the contract is one for supplies, and furnishes a product it did not itself manufacture or produce, is categorized as a nonmanufacturer and deemed small if it meets the requirements of [the nonmanufacturer rule].”). The contracting officer is tasked with “determin[ing] the appropriate [NAICS] code and related small business size standard and includ[ing] them in solicitations.” Id. § 19.303(a)(1); see 13 C.F.R. § 121.402(b). In this regard, the contracting officer “shall select the NAICS code which best describes the principal purpose of the product or service being acquired.” FAR § 19.303(a)(2).

Triad argues that the VA’s market research failed to assess whether any of the businesses identified by researching the two databases actually manufactured radioisotopes, or was otherwise able to qualify as a small business concern under the NAICS code for this procurement. In this regard, the RFQ here provides that, “[i]f the offeror is not a manufacturer of a required item, the offeror must provide evidence they are an authorized distributor or reseller of the proposed items.” See RFQ at 7. Triad contends that without considering whether any of the identified businesses, or the incumbent contractor for the requirement, could provide the radioisotopes or otherwise meet the nonmanufacturer rule, the contracting officer could not have known, based on the market research, whether any of the identified businesses qualify as small for this procurement.

Triad also notes that the relevant NAICS code covers a broad swath of pharmaceutical manufacturing--from the manufacturing of cold medicines and lip balms, to the manufacturing of radiopharmaceuticals. The protester argues that the contracting officer’s conclusion that there would be small businesses available in the field of radiopharmaceuticals could not reasonably be based on the number of small businesses included under such a broad NAICS code.

In defending the adequacy of the conclusions set forth in its market research report, the VA, in its initial response to this protest, acknowledged that the nonmanufacturer rule applies to this procurement. The report stated: “[T]here is no indication that the incumbent contractor cannot comply with the nonmanufacturer rule.” AR at 8. The agency also noted that, under the nonmanufacturing rule, the small business must be “capable of providing the end item” or “supply the end item manufactured by a small business manufacturer, process or producer made in the United States.” Id.

In its supplemental agency report, the VA changed its view, and asserts that the nonmanufacturer rule does not apply to the procurement. Specifically, the contracting officer asserts that she viewed the solicitation as a service contract, rather than a manufacturing contract, and therefore, states that she did not consider as part of her market research whether the identified businesses, or the incumbent contractor, were a manufacturer of radioisotopes. CO Statement (June 16, 2015), at 2 (“The agency did not consider the cyclotron in the evaluation of Market Research. . . . [W]e viewed this as a Service, and did not consider the manufacture of the underlying base pharmaceutical.”); Supp. AR (June 16, 2015), at 3.

In short, and as developed further below, we agree with the protester on the basic underpinning of its challenge. If the VA did not consider the issue of whether the companies it identified manufacture radiopharmaceuticals, or could comply with the solicitation’s delivery requirements, the agency could not reasonably assess whether there are eligible small business concerns capable of performing the requirements of the RFQ.

As an initial matter, despite the CO’s representation that she “did not consider the manufacture of the underlying base pharmaceutical,” id., there is little basis for dispute that the NAICS code here was a manufacturing code. As discussed above, this solicitation is for the provision of and delivery of radiopharmaceutical and non-radiopharmaceutical items. RFQ at 5. The NAICS code assigned by the contracting officer to this procurement is 325412, Pharmaceutical Preparation Manufacturing. RFQ at 1. This code, on its face, is a manufacturing code.

In addition, at no point during this protest has the agency contended that the NAICS code it selected was not appropriate for this procurement. Rather, the contracting officer explains that, “[b]ased on the unit dose nature of this requirement, [she] viewed this as a Service [contract].” Supplemental CO Statement (June 16, 2015), at 2. There is an inconsistency between the statement above, and the NAICS code incorporated into this procurement. As stated above, application of the nonmanufacturer rule depends primarily on the NAICS code assigned to the procurement, and it is the contracting officer who is responsible for designating the proper NAICS code. See FAR § 19.303(a)(2); BlueStar Energy Solutions, supra, at 2.

We conclude that the contracting officer’s market research failed to support an assessment as to whether the identified companies were radiopharmaceutical providers, or otherwise capable of performing the contract requirements. See Information Ventures, Inc., supra (stating that the required inquiry for the contracting officer goes not only to the existence of small businesses that might submit proposals, but also to small businesses’ capabilities to perform the contract requirements). Specifically, the agency’s database searches were based solely on the RFQ’s NAICS code, which as mentioned above, covers a wide range of pharmaceutical manufacturing--from the manufacturing of lip balms, to the manufacturing of nuclear medicine (e.g., radioisotopes). There is no indication in the market research report, or otherwise, that any of the identified companies are radiopharmaceutical providers or have the required nuclear pharmacy licenses to perform under the contract. AR, Tab 1, Market Research Report, at 1-4; see also Protester’s Comments (May 22, 2015), at 6-7, exh. 5, Pharmacy License Registration Information for Small Business References. Accordingly, we find the contracting officer’s determination that there was a reasonable expectation of receiving offers from at least two responsible small business concerns was not based on sufficient facts or market research to establish its reasonableness. We sustain the protest on this basis.  (Triad Isotopes, Inc. B-411360: Jul 16, 2015)  (pdf)

The essence of Walker’s protest is that the agency was required to conduct market research to determine if the acquisition should have been set-aside for small business participation before using the FSS. Walker contends that the agency’s failure to conduct market research and to subsequently set aside this acquisition for competition among small business concerns violates the Small Business Act, 15 U.S.C. § 644(a), as implemented by Federal Acquisition Regulation (FAR) § 19.502-2(b). This regulation requires that an acquisition with an anticipated dollar value of more than $150,000 must be set aside for small business concerns if the agency determines that there is a reasonable expectation of receiving fair market offers from at least two responsible small business concerns (the so-called Rule of Two). The protester asserts that there were at least two other small business concerns listed in the system for award management database that were capable of providing the solicited requirements at fair and reasonable prices. Under such circumstances, Walker argues, the VA was required to set aside this acquisition for small business concerns.

The VA responds that it was not required to evaluate whether there were two or more small businesses capable of providing the services prior to deciding to purchase them through the FSS program.

We agree with the agency. The regulations that implement the FSS program expressly exclude FSS purchases from the set-aside requirements in FAR part 19. Specifically, FAR § 8.404(a) provides that FAR part 19 does not apply to orders placed against FSS contracts. Similarly, FAR § 38.101(e) provides that the requirements of Part 19 apply at the acquisition planning stage prior to issuing the schedule solicitation and, generally, do not apply to orders placed under resulting schedule contracts. Based on the preceding sections of the FAR, we have previously concluded that the Small Business Act and its implementing regulations do not impose a requirement on agencies to first evaluate whether a solicitation should be set aside for small businesses before purchasing the goods or services through the FSS program. Kingdomware Techs., Inc., B-405533.2, Nov. 10, 2011, 2011 CPD ¶ 251 at 3; Edmond Computer Co.; Edmond Sci. Co., B-402863, B-402864, Aug. 25, 2010, 2010 CPD ¶ 200 at 3.  (Walker Development & Trading Group B-411357: Jul 8, 2015)  (pdf)

Next, the protester argues that the agency acted unreasonably when it did not reserve awards specifically for HUBZone small businesses. Supplemental Protest at 8. We disagree. The Small Business Jobs Act and its implementing regulations provide that once an agency has determined it will use full and open competition for a multiple-award contract,[6] the agency has considerable discretion in deciding whether to reserve awards for small businesses. 15 U.S.C. § 644(r)(3); FAR § 19.502-4(a) (establishing that when conducting multiple-award procurements using full and open competition, “contracting officers may, at their discretion,” reserve one or more contract awards for any of the small business programs); 13 C.F.R. § 125.2(e)(4) (providing that a “contracting officer may reserve one or more awards for small business where” certain conditions are met). This discretion includes reserving any number of contract awards, for any socioeconomic category of small businesses, or for small businesses generally. FAR § 19.502-4(a); 13 C.F.R. § 125.2(e)(4).

Here, the record shows that the VA received only six RFI responses from HUBZone businesses, only three of which indicated they were interested in serving as prime contractors and could perform more than 50 percent of the work. AR, Exh. 9, Market Research Report, at 2. While Akira argues that the list of contractors participating in industry day indicated that at least 29 HUBZone contractors were interested in the procurement, Protest at 12, the agency explains that it relied primarily on the RFI responses in determining its reserve strategy, because the industry day, which was conducted virtually, did not provide information as to companies’ capabilities or interest in being a prime contractor. CO Statement at 8-9. Additionally, as noted above, the VA assessed the HUBZone RFI respondents as representing greater than medium performance risk to the government, and the protester has not meaningfully challenged this assessment. On this record and given the broad discretion provided to agencies under the Small Business Jobs Act and its implementing regulations, we have no basis to conclude that the agency acted unreasonably in not reserving any awards specifically for HUBZone business concerns.  (Akira Technologies, Inc. B-410898: Mar 10, 2015)  (pdf)

As an initial matter, the “Rule of Two” describes a long-standing regulatory policy intended to implement provisions in the Small Business Act, 15 U.S.C. § 644(a), requiring that small businesses receive a “fair proportion of the total purchases and contracts for property and services for the Government.” 49 Fed. Reg. 40,135 (Oct. 3, 1984). Accordingly, the Rule of Two requires agencies to set aside for small business participation an acquisition over $150,000 if there is a reasonable expectation of receiving fair market offers from at least two responsible small business concerns. FAR § 19.502-2(b).

On September 27, 2010, Congress passed the Small Business Jobs Act to address the ongoing effects of the financial crisis on small businesses. H. Rept. 111-499. As relevant here, section 1331 of the Small Business Jobs Act deals with the question of setting aside for small businesses the task orders that are issued under multiple-award contracts. The provision states:

“Section 15 of the Small Business Act (15 U.S.C. 644), as amended by this Act, is amended by adding at the end the following:

(r) MULTIPLE AWARD CONTRACTS.--Not later than 1 year after the date of enactment of this subsection, 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, United States Code, and section 303J(b) of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. § 253j(b)), set aside orders placed against multiple award contracts for small business concerns, including the subcategories of small business concerns identified in subsection (g)(2) …”

15 U.S.C. § 644(r) (emphasis added). This provision required the Office of Federal Procurement Policy (OFPP) and SBA to create regulations that provide agencies guidance on exercising the discretion to set-aside task orders under multiple-award contracts, as contemplated by the Small Business Jobs Act. See FitNet Purchasing Alliance, B-406075, Feb. 3, 2012, 2012 CPD ¶ 64 at 5-6. Consistent with that directive, the OFPP amended FAR part 19 and subpart 16.5 in November, 2011, and SBA issued regulations in October, 2013.

On November 2, 2011, FAR part 19 and subpart 16.5 were amended to add sections 19.502-4 and 16.505(b)(2)(i)(F). 48 C.F.R. §§ 19.502-4 and 16.505; 76 Fed. Reg. 68,032 (Nov. 2, 2011). The new provisions set forth at FAR § 19.502‑4 state that pursuant to section 1331 of the Small Business Jobs Act, “contracting officers may, at their discretion . . . [s]et aside orders placed under multiple‑award contracts for any of the small business concerns identified in 19.000(a)(3)” (emphasis added).[8] FAR § 19.502-4(c). For multiple-award contracts other than those under the Federal Supply Schedule Program, FAR § 16.505(b)(2)(i)(F) repeats the FAR part 19 statement that contracting officers “may, at their discretion” set aside orders placed under multiple award contracts for any of the small business concerns identified in § 19.000(a)(3). The preamble to this rule makes no mention of the applicability of the Rule of Two. See 76 Fed. Reg. 68,032, supra.

On October 2, 2013, SBA promulgated its own regulations to implement section 1331 of the Small Business Jobs Act. 78 Fed. Reg. 61,114 (Oct. 2, 2013); 13 C.F.R. § 125.2. Subsection 125.2(a) states that the regulations apply to multiple award contracts. Relevant here, the regulation at 13 C.F.R. § 125.2(e)(6) states that a contracting officer has the authority to set aside orders against multiple award contracts that were competed on a full and open basis. Subparagraph (e)(6)(ii) explains that a contracting officer may state in a solicitation and resulting multiple-award contract that: (1) based on the results of market research, orders will be set aside whenever the Rule of Two (or any alternative small business set-aside) has been met; or (2) the agency will preserve the right to set aside orders using the Rule of Two on an order-by-order basis (emphasis added). 13 C.F.R. § 125.2(e)(6)(ii).

A Set-Aside Was Not Required

The issue before us is whether the Army abused its discretion in not reserving this task order for small business participation, and whether the Army was required, under current law and regulations, to base its determination on a Rule of Two analysis. We first consider the application of the Rule of Two here, and then turn to whether the decision, generally, was an abuse of discretion. We conclude that the Rule of Two had no application here, and that the Army’s determination was reasonable.

We start with the observation that section 1331 of the Small Business Jobs Act does not directly address this question. As the SBA argues, the purpose of the Act was to direct the SBA and OFPP to promulgate regulations to establish guidance. Nonetheless, it is worth noting that the statute refers to establishing guidance under which Federal agencies may, at their discretion, set aside for small businesses orders placed against multiple-award contracts.

Turning next to the above-cited FAR provisions, we think it is beyond debate that these regulations, by their plain language, grant discretion to a contracting officer about whether to set aside for small business participation task orders placed under multiple-award contracts. See FAR §§ 19.502-4, 16.505(b)(2)(i)(F).

With respect to the SBA’s regulations, we read those regulations as granting to the contracting officer discretion to do one of two things when issuing the underlying solicitation for a multiple-award contract, either: (1) provide notice that the agency will apply the Rule of Two whenever market research leads the agency to conclude that the conditions for applying the Rule have been met; or (2) reserve the right to apply the Rule of Two on an order-by-order basis. 13 C.F.R. § 125.2(e)(6)(ii). Contrary to the SBA’s argument in this protest, that the Army must apply the Rule of Two, see SBA Comments at 9-12, the plain language of the regulation provides that the contracting officer may elect to commit the agency, in its multiple award contracts, to applying the Rule of Two when creating the underlying multiple-award contracts.

Thus, while a solicitation (and ensuing multiple-award contract) may mandate a set-aside task order competition in every instance in which the Rule of Two is satisfied, or may preserve the agency’s right to consider a set-aside using the Rule of Two, the solicitation here expressly did not make either of these commitments. Here, the TEAMS contract, which was formed in 2008, some two years prior to the passage of the 2010 Act (and 5 years prior to promulgation of the SBA’s regulations), did not state that the Rule of Two would be used to determine whether to set aside task orders. Instead, as set forth above, the TEAMS contract reserved the right to set aside orders for small businesses, but did not specify the standard that would apply in making these determinations. AR, Tab 10, TEAMS Contract, at 70. Thus, the Army was not required to apply the Rule of Two in its set-aside determination, and this aspect of Edmond’s protest is denied.

Moreover, we conclude that the Army’s decision not to set aside the task order for small businesses was reasonable. As set forth above, the TEAMS contract did not identify a particular standard for assessing the availability of capable small businesses in determining whether to set aside a requirement. The record shows that the Army, in exercising its discretion, performed market research by issuing an RFI that sought information from interested small businesses holding one of the underlying ID/IQ contracts. In response, it received capability statements from Edmond and one other small business TEAMS contractor, which were evaluated by the agency’s technical representative. The evaluations were considered by the market research team, which prepared a memorandum and documented its conclusion that, based on the responses received, and consistent with the demands of the proposed acquisition, the Army did not have a reasonable expectation of obtaining from small businesses the best operational sources for the best mix of costs, performance, and schedule, as defined by FAR part 19.5, Small Business Set Asides. AR, Tab 8, Market Research Memorandum, at 4. We have reviewed the contemporaneous documentation and conclude that it provides a reasonable basis for the Army’s decision. We deny this ground of protest.  (Edmond Scientific Company, B-410179, B-410179.2: Nov 12, 2014)  (pdf)

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. Commonwealth Home Health Care, Inc., B-400163, July 24, 2008, 2008 CPD ¶ 140 at 3. In making set-aside decisions, agencies need not make actual determinations of responsibility or decisions tantamount to determinations of responsibility; rather, they need only make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract. Ceradyne, Inc., B-402281, Feb. 17, 2010, 2010 CPD ¶ 70 at 4. Because a decision whether to set aside a procurement is a matter of business judgment within the contracting officer’s discretion, our review is limited to determining whether that official abused his or her discretion. KNAPP Logistics Automation, Inc., B-406303, Mar. 23, 2012, 2012 CPD ¶ 137 at 2. We will not question a small business set aside determination where the record shows that the evidence before the contracting officer was adequate to support the reasonableness of the conclusion that small business competition reasonably could be expected. Commonwealth Home Health Care, Inc., supra, at 3.

Here, the protesters argue that the market research conducted by the contracting officer was inadequate to support his conclusion that offers from at least two capable small business concerns could reasonably be expected. We have reviewed the protesters’ allegations and find that they do not provide a basis to question the reasonableness of the agency’s set-aside decision.

The record shows, as noted above, that at least two small businesses responded to the sources sought notice and had demonstrated experience on projects in excess of the sample 3,000-acre project established in the RFP. We note that the protesters do not challenge the capability of one of these small businesses, [deleted]. Rather, the protesters challenge the second, [deleted], noting that it has allegedly claimed status as a woman-owned small business but reports having a president who is not a woman. In this regard, the protesters argue that if the firm’s statement of its woman-owned status is questionable, the agency should have questioned the veracity of that firm’s small business certification and its overall responsibility.

As an initial matter, the solicitation at issue is not a woman-owned set-aside procurement; rather, it has been set aside for small business concerns with annual receipts of less than $7 million. The record shows that the contracting officer confirmed that the firm in question, [deleted], met the solicitation’s $7-million size requirement through the government’s System for Award Management (at www.sam.gov). AR, Tab 6, at 7. Additionally, he found the firm capable of performing the contract where the firm reported having adequate equipment and personnel to perform the work, and where the firm recently completed a similar aerial mulching project. To the extent the protesters raise concerns regarding [deleted] integrity, as explained above, agencies need not make actual determinations of responsibility or decisions tantamount to determinations of responsibility in assessing expected small business competition; the agency here only needed to make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from at least two small business concerns that are capable of performing the contract. See Ceradyne, Inc., supra. Based on the record in this case, we have no reason to question the reasonableness of the contracting officer’s set-aside decision.  (Mountain West Helicopters, LLC; Trans Aero, Ltd., B-408150, B-408150.2, Jul 1, 2013)  (pdf)

AMEC challenges the VA’s decision to set aside only a portion of the VISN 16 requirements for home oxygen services. AMEC raises numerous arguments challenging the adequacy of the agency’s market research, which underlies the VA’s determination that there was not a reasonable expectation of receiving offers from two or more small business concerns capable of performing the requirement. We have considered the protester’s arguments and find that none provide a basis to object to the VA’s decision not to set-aside the RFP, in its entirety, for small businesses.

The Federal Acquisition Regulation (FAR) requires that acquisitions with an anticipated dollar value of more than $150,000 be set aside for small business concerns if the agency determines there is a reasonable expectation that offers will be received from two or more responsible small business concerns, and that award will be made at a fair market price. FAR § 19.502-2(b). Generally, we regard such a determination as a matter of business judgment within the contracting officer’s discretion, and we will not sustain a protest challenging the determination absent a showing that it was unreasonable. North Shore Medical Labs, Inc., B-310747, Feb. 6, 2008, 2009 CPD ¶ 70 at 4. However, an agency must undertake reasonable efforts to ascertain whether it is likely that it will receive offers from at least two small businesses capable of performing the work. Id. Our Office will review a protest of an agency determination not to set aside a procurement to determine whether the contracting officer has undertaken reasonable efforts to ascertain the availability of capable small businesses. Id.

In determining the availability of responsible small business concerns for set-aside purposes, the contracting agency’s investigation goes not only to the existence of the businesses, but also to their capability to perform the contract. Information Ventures, Inc., B-279924, Aug. 7, 1998, 98-2 CPD ¶ 37 at 3. The fact that multiple small business responses are received in the course of market research is not necessarily determinative. See The Protective Group, Inc., B-310018, Nov. 13, 2007, 2007 CPD ¶ 208 at 3.

The protester argues that the RFI was inadequate for the purpose of assessing small business capabilities and failed to provide notice that the CO was using the RFI to assess the ability of small businesses to meet the VISN-wide requirement. Protester’s Comments at 4. This contention is without merit. The RFI stated that the VA sought home oxygen services for VISN 16, described in detail the geographic scope of the requirement, and identified the approximate number of patients. AR, Exh. 4, RFI. The RFI also directed interested businesses to respond with their business size and their capability to meet the VISN 16 home oxygen requirements. AR, Exh. 4, RFI, at 7. This included a request for information indicating whether the respondent was capable of serving the entire VISN 16 or only a portion. Id. Given these facts, we have no basis to conclude that it was unreasonable for the CO to rely on the RFI responses to assess whether the small businesses that responded were capable of providing services to the entirety VISN 16.

AMEC also asserts that the CO did not conduct adequate market research after changing the NAICS code from 532291 to 621601, thereby increasing the size standard from $7 million to $13.5 million. Supplemental Protest at 3-4. According to the protester, the CO should have reissued the RFI to include the more expansive NAICS code, and thus acted unreasonably by not providing additional small businesses with the opportunity to submit capability statements. Id. We disagree.

The record reflects that after deciding to change the NAICS code, the CO again searched government databases to assess the capability of additional businesses which qualified as small under NAICS 621601 but not under NAICS 532291. See AR, Exh. 8, Market Research Documentation and Determination, Addendum to Market Research Report for VISN Home Oxygen Services, at 3; Exh. 33, SBA Dynamic Small Business Search (oxygen); Exh. 34, SBA Dynamic Small Business Search (home oxygen). Based on her review of this information as well as her prior market research, the CO concluded that there was not a reasonable expectation that offers would be received from two or more small businesses capable of providing home oxygen services to all of VISN 16. AR, Exh. 8, Market Research Documentation and Determination, Addendum to Market Research Report for VISN Home Oxygen Services, at 3. Moreover, after deciding to change the NAICS code, the CO advised a VA small business specialist of the change and explained her determination that the procurement approach should remain the same. AR, Exh. 28, CO Supplemental Protest Narrative, at 2-3. The small business specialist concurred with this decision. Id.; see also MVM, Inc.; Cook International, Inc.; Special Investigations, Inc.; and Varicon, Inc., B-237620, March 13, 1990, 90-1 CPD ¶ 270 at 3 (“[W]e give great weight to the fact that the contracting officer's determination was made with the concurrence of the small business program manager.”). Accordingly, we have no basis to conclude that the CO acted unreasonably in deciding not to reissue the RFI.

AMEC also faults the CO for failing to consider the capability statements of three of the small businesses that responded to the RFI--Lincare, Inc., A-Z DME, and AeroFlow. Protester’s Comments at 9-10. With regard to Lincare, the record demonstrates that the CO had conflicting information as to whether Lincare was in fact a small business; thus, it was reasonable for the CO to question Lincare’s status as such. See AR, Exh. 8, Market Research Documentation and Determination, D&B report for Lincare, at 2; Exh. 20, Lincare’s RFI Response. With regard to A-Z DME, although not mentioned in the CO’s Market Research Report dated February 16, 2012, other contemporaneous documents reflect that the CO considered A-Z DME’s RFI response as well as the company’s FPDS-NG data when she made her set-aside determination. See AR, Exh. 8, Market Research Documentation and Determination, CO’s Determination and Findings, Set-Aside Procedures, at 1; AR, Exh. 8, Market Research Documentation and Determination, FPDS-NG report for A-Z DME.

With regard to AeroFlow, AMEC correctly notes that the contemporaneous record does not indicate that the CO assessed this firm’s RFI response prior to issuing the solicitation. The CO, however, explains that she did in fact consider AeroFlow’s response, D&B report, and FPDS-NG information during her initial market research, but that her review of this information was inadvertently excluded from the market research documentation. Exh. 19, CO’s Supplemental Narrative, at 2. The CO states that AeroFlow’s RFI response and FPDS-NG data failed to demonstrate that the company could meet the home oxygen requirements for all of VISN-16. Id. We have reviewed these documents and find the CO’s assessment to be reasonable. For example, AeroFlow’s RFI response demonstrated that it did not currently provide home oxygen services in any of the states serviced by VISN-16. See AR, Exh. 5, RFI Responses, AeroFlow Response. To the extent the protester argues that we should disregard the CO’s representations because they are not reflected in the contemporaneous record, we disagree. While we give greater weight to contemporaneous materials, as compared to statements made in response to a protest, we will consider such statements where, as in this case, the agency’s representations are credible and consistent with the contemporaneous record. Further, even if we were to assume that AeroFlow was a small business capable of meeting the requirement at issue, this would not establish that there are two small businesses capable of doing so.

Finally, the protester argues that it was inappropriate for the CO to consider the SER scores from the D&B reports and that the CO improperly found three of the six small businesses that responded to the RFI to be not responsible for financial reasons. According to AMEC, the CO’s responsibility determinations were inappropriate since such determinations are to be made by the SBA, not the VA. Protester’s Comments at 7-9. The protester’s arguments in this regard are belied by the factual record, which makes plain that the CO did not make a responsibility determination regarding any of the small businesses that responded to the RFI. See AR, Exh. 8, Market Research Documentation and Determination, Market Research Report, Feb. 16, 2012. Rather, the record demonstrates that the SER scores were simply one factor of many considered by the CO to inform the exercise of her business judgment regarding the potential for receiving at least two offerors from small business concerns that could reasonably satisfy the agency’s requirements. See id.; EMMES Corporation, B-402245, B-402245.2, Feb. 17, 2010, 2010 CPD ¶ 53 at 4 (holding that considerations relevant to determining capability “may be similar to responsibility standards”). Thus, we have no basis to find unreasonable the CO’s exercise of her business judgment in deciding to issue the RFP as a partial set-aside for small business concerns, rather than issuing the solicitation as a total set-aside.

The protest is denied.  (American Medical Equipment Company, B-407113, B-407113.2, Nov 8, 2012)  (pdf)

Marshall makes numerous arguments challenging HUD’s determination that it could reasonably expect to receive quotations from two or more capable small businesses. We have considered all of the protester’s arguments, although we only address the primary ones, and find that none provide a basis to object to the agency’s decision to set aside the RFQ for small businesses.

Under Federal Acquisition Regulation (FAR) §19.502-2(b), a procurement with an anticipated dollar value of more than $150,000, such as the one here, 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 fair market prices. The use of any particular method of assessing the availability of small businesses is not required so long as the agency undertakes reasonable efforts to locate responsible small business competitors. National Linen Serv., B-285458, Aug. 22, 2000, 2000 CPD ¶ 138 at 2. 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. SAB Co., B-283883, Jan. 20, 2000, 2000 CPD ¶ 58 at 1-2; PR Newswire, B-279216, Apr. 23, 1998, 98-1 CPD ¶ 118 at 2. Because a decision whether to set aside a procurement is a matter of business judgment within the contracting officer’s discretion, our review generally is limited to ascertaining whether that official abused his or her discretion. ViroMed Labs., B-298931, Dec. 20, 2006, 2007 CPD ¶ 4 at 3.

Marshall contends that, based upon its own familiarity with the competitive market for cost estimating database software, the contracting officer could not reasonably have determined that two responsible small businesses were capable of satisfying the RFP’s requirement at fair market prices. In this regard, the protester argues that the agency’s market research, and the procurement history, were not relevant or reliable because the RFQ contains new requirements that are unlikely to be satisfied by small businesses. Protest at 13-14. Specifically, Marshall argues that the RFQ now requires that the cost estimating service be internet-based and backed by an accurate and comprehensive proprietary database; and that it be available on a 24-hours per day, 7-days per week basis. Id.

HUD disagrees that these requirements are either new or indicate that the agency could not expect to receive quotations from two or more capable small businesses. The requirements that the system be “internet-based” and be backed by “an accurate and comprehensive proprietary database” were included in Bluebook’s 2011 contract, AR, Tab 29, Bluebook Contract, at 3, apparently because this was offered by the small businesses in response to that solicitation.[2] Similarly, the requirement that the system be available continuously was promised by four of the small businesses in response to the solicitation, although this requirement was not incorporated in Bluebook’s contract. AR at 8. We find that these requirements do not call into question the agency’s market research that indicated that it could expect quotations from two or more small businesses.

Marshall also argues that HUD’s expectation that it would receive small business quotations based on subcontracting or teaming arrangements was unreasonable because its market research did not take into account various likely affiliation issues inherent in such arrangements, such as whether the quotations would comply with the RFQ’s limitations on subcontracting clause or SBA’s ostensible subcontractor rule. Protester’s Comments and Supp. Protest at 7-21. Marshall argues, for example, that a contracting officer had an affirmative duty to ask the Small Business Administration whether these prospective teaming arrangements would violate the SBA’s “ostensible subcontractor” rule. Id. at 19.

There is no merit to these arguments. Marshall confuses the standard for determining whether an agency may accept on its face a small business’s self-certification when its offer is being considered for award, and whether there is a reasonable expectation that two or more offers will be submitted by capable small businesses. In making set-aside decisions, agencies need not make either actual determinations of responsibility or decisions tantamount to determinations of responsibility with regard to prospective offerors; they need only make an informed business judgment that there are small businesses expected to submit offers that are capable of performing. ViroMed Labs., supra, at 3–4.

Marshall also contends that the agency’s acceptance of quotations based upon a teaming arrangement where a small business proposes to use a subcontractor for the database service places too great a risk on HUD. This contention also has no merit. It is true that the agency recognized that such a teaming arrangement posed a potential performance risk, see AR, Tab 31, 2012 Market Research, at 7, but the agency did not find that this indicated it could not expect quotations from two or more capable small businesses.

In short, the record shows that HUD’s expectation that it would receive two or more quotations from responsible small businesses at fair market prices was reasonable.

The protest is denied.  (Marshall & Swift-Boeckh, LLC, B-407329, B-407329.2, Dec 18, 2012)  (pdf)

Swank argues that the requirement here is too large and complex for a small business to successfully perform, and that the agency did not properly document the basis for the set-aside determination. Protest at 3; Comments at 2-3.

The FAR provides that, although the preference programs of FAR Part 19 are generally not applicable to procurements under the FSS procedures of FAR Subpart 8.4, an agency may, in its discretion, set aside orders for any of the small business concerns identified in FAR § 19.000(a)(3). See FAR § 8.405-5(a). Here, the record shows that the VA exercised this discretion to set aside the RFQ for small businesses, after identifying five small business concerns holding FSS contracts that could perform this work. Moreover, the VA received quotations from two apparently responsible small businesses in response to the RFQ. See York Int’l Corp., B-244748, Sept. 30, 1991, 91-2 CPD ¶ 282 at 7 (receipt of offers from small businesses supports an agency’s determination to set aside a procurement for small businesses). Although Swank disagrees with the agency’s decision to set aside this FSS procurement for small businesses, it does not show that the agency violated any law or regulation in doing so.

Swank also complains that the VA did not verify each small business concerns’ ability to meet all of the requirements of the solicitation prior to making its set-aside decision. Comments at 2-3. There is no merit to this complaint. Agencies are not required to make actual determinations of responsibility or decisions tantamount to determinations of responsibility in determining whether to set aside a procurement. See, e.g., Ceradyne, Inc., B-402281, Feb. 17, 2010, 2010 CPD ¶ 70 at 4.

The protest is denied.  (Swank Healthcare, B-407367, Dec 12, 2012)  (pdf)

Walden argues that the decision to set aside the procurement for small business participation was unreasonable, improper, and an abuse of the contracting officer’s discretion. Walden asserts that the CDC did not contemporaneously evaluate whether there were two capable and qualified small business concerns that met the RFQ’s requirements at a fair market price. Alternatively, Walden contends that the CDC’s set-aside determination was unreasonable since no small business is capable of meeting the RFQ’s licensing requirements, or providing the services at a fair market price.

Under Federal Acquisition Regulation (FAR) § 19.502-2(b),a procurement with an anticipated dollar value of more than $150,000, such as the one here, must be set aside for exclusive small business participation when there is a reasonable expectation that: (1) offers will be received from at least two responsible small business concerns, and (2) that award will be made at a fair market price. The use of any particular method of assessing the availability of small businesses is not required so long as the agency undertakes reasonable efforts to locate responsible small business competitors. Med-South, Inc., B-401214, May 20, 2009, 2009 CPD ¶ 112 at2; National Linen Serv., B-285458, Aug. 22, 2000, 2000 CPD ¶ 138 at 2.

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. Commonwealth Home Health Care, Inc., B-400163, July 24, 2008, 2008 CPD ¶ 140 at 3. In making set-aside decisions, agencies need not make actual determinations of responsibility or decisions tantamount to determinations of responsibility; rather, they need only make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract. Ceradyne, Inc., B-402281, Feb. 17, 2010, 2010 CPD ¶ 70 at 4. Because a decision whether to set aside a procurement is a matter of business judgment within the contracting officer’s discretion, our review is limited to determining whether that official abused his or her discretion. KNAPP Logistics Automation, Inc., B-406303, Mar. 23, 2012, 2012 CPD ¶ 101 at 2. We will not question a small business set aside determination where the record shows that the evidence before the contracting officer was adequate to support the reasonableness of the conclusion that small business competition reasonably could be expected. Commonwealth Home Health Care, Inc., supra, at 3.

We first address Walden’s argument that the CDC failed to conduct, or document, any contemporaneous analysis or evaluation to support its decision to issue the solicitation as a small business set-aside, and its companion argument that we should give the agency’s post-protest analysis little or no weight.

The only contemporaneous evidence of the set-aside analysis is the e-mail from the program analyst to the contract specialist discussed above, with “yes” or “no” notations beside the names of firms responding to the sources sought notice. Walden challenged the agency’s documentation in its comments on the agency report, and GAO asked the agency to respond. The CDC provided a declaration, and a supplemental declaration, from the program analyst. The program analyst states that, after she received the capability statements, she read and evaluated each against a set of questions and responses established to ascertain a firm’s capability to perform. She states that, during the course of this protest, she refreshed her memory of that evaluation by re-reading the capability statements of the firms found capable and recollected the reasons for her findings. AR, Exh. X, Supp. Program Analyst Declaration, at ¶¶ 3-10. She provided her documented recollections for each firm.

Walden argues that the agency’s post-protest analysis should be accorded no weight, as it was prepared during the adversarial protest process and does more than fill in limited gaps in the contemporaneous record. We do not agree.

As Walden acknowledges, GAO will not limit its review to contemporaneous evidence, but considers all the information provided, including a party’s arguments and explanations. See Serco, Inc., B-406683,B-406683.2, Aug. 3, 2012, 2012 CPD ¶ 216 at 7. While we generally give little or no weight to reevaluations and judgments prepared in the heat of the adversarial process, Boeing Sikorsky Aircraft Support, B-277263.2,B-277263.3, Sept. 29, 1997, 97-2 CPD ¶ 91 at 15, post-protest explanations that provide a detailed rationale for contemporaneous conclusions, and simply fill in previously unrecorded details, will generally be considered in our review as long as those explanations are credible and consistent with the contemporaneous record. NWT, Inc.; Pharm Chem Labs., Inc., B-280988,B-280988.2, Dec. 17, 1998, 98-2 CPD ¶ 158 at 16.

Here, the contemporaneous conclusions were the “yes” notations in the program analyst’s e-mail to the contract specialist. The program analyst’s post-protest explanations provide detailed and credible rationales for those conclusions, and fill in the details she did not previously record. As a result, we consider these explanations in our review of the propriety of the agency’s set-aside determination.

Walden alternatively argues that the CDC’s post-protest analysis does not show that there were two capable and qualified small business concerns that met the RFQ’s requirements at a fair market price. Walden’s principal argument is that there is no reasonable expectation that two or more small businesses can meet the solicitation’s armed guard license requirements under Georgia law.

As noted above, the PWS requires the contractor to ensure that each security guard has obtained all licenses, permits and certificates required by federal, state and local laws 120 days after award. PWS ¶¶ 4.1.3,4.1.8. The CDC does not dispute that armed security guards must be licensed under Georgia law. The CDC also does not dispute Walden’s characterization of Georgia law as requiring that the security company, as the employer, must apply for and obtain the license on behalf of its employee. After properly registering its employees, the security company retains the license of its armed security guards. Georgia does not permit the transfer of such licenses between employers. Protest at 6.

Walden argues that no small business can meet this requirement because the 120-day transition period does not allow enough time to re-certify the security guards now working for Walden or a sufficient number of other security guards to perform the requirements. Walden argues that, to apply for a license, the employees must be employed by the contractor, and obtaining the licenses takes between 5 and 7 months, longer than the transition period. Walden’s estimate is drawn from an October 2011 e-mail from a CDC supervisory contracting officer to the contract specialist. Protest, Tab C, at 43-45. In this e-mail, which concerned a planning meeting for the recompetition of these requirements, the supervisory contracting officer refers to the licenses at issue and states that “[i]t takes about 5 to 7 months to obtain the licenses from the State of Georgia . . . ” Id.

The CDC counters that this e-mail is not dispositive because it does not reflect the time estimate of the State of Georgia, the licensing entity. The CO states that her independent investigation of time tables for obtaining licenses showed that the state’s estimates for processing an application coincided with the transition period in the solicitation. CO Statement at 7. In this regard, the contract specialist states that she contacted the Georgia Secretary of State, Professional Licensing Board Division, to find out the timeframe for security guard companies to obtain guard licenses for their employees, so the CDC could set reasonable timeframes for contract transition. She states that on three occasions, including February and July of 2012, she contacted the state and was given the affirmative timeframe of 25 to 30 days for a company to obtain licenses for employees to work under their company as security guards. AR, Att. 1, Declaration of Contract Specialist, at ¶¶ 3-5.

We agree with the CDC that the e-mail proffered by Walden is, at best, the supervisory contracting officer’s estimate, and that the CDC reasonably relied on information obtained from the state of Georgia itself. Walden’s argument that the contract specialist’s declaration is not accompanied by more specific documentation affords us no basis to question its contents. Walden argues that the estimate of 25-30 days does not account for delays in filing applications or post-application delays due to incorrectly completed applications. However, Walden has not shown that any of these potential delays undercut the agency’s determination that offers from two or more responsible small businesses can reasonably be expected.

Finally, Walden asserts that the agency did not analyze whether small businesses could offer fair market prices. Walden argues that, because of the licensing and other technical requirements, any small business would have to add a premium to its proposed pricing, thereby resulting in prices higher than fair market.

A contracting officer may reasonably rely on an expectation that there will be adequate price competition to conclude that the competition will result in a fair market price. KNAPP Logistics Automation, Inc., B-406303, Mar. 23, 2012, 2012 CPD ¶ 137 at 5. The FAR provides that adequate price competition exists where two or more responsible offerors submit proposals that satisfy the government’s requirements, award is based on a best value determination where price is a substantial factor, and the price of the successful offeror is not unreasonable. FAR §§ 15.403-1(c)(1);15.404-1(b)(2)(i). Here, the CDC concluded that four of 19 firms responding to the notice were small businesses capable of meeting the solicitation’s requirements. Walden’s speculation that small businesses would propose prices higher than fair market is just that. Under the circumstances, we conclude that it was reasonable for the CDC to anticipate adequate price competition, and that, as a result of that price competition, award would be made at a fair market price under the set-aside procurement. National Linen Serv.,supra, at 3-4.  (Walden Security, B-407022, B-407022.2, Oct 10, 2012)  (pdf)

DNO objects to the agency’s decision to not set aside the RFP for small business concerns, arguing that there is a reasonable expectation that the agency will receive offers from two or more small businesses at fair and reasonable prices. Protest at 7-8. In this regard, the protester contends that the agency failed to perform any reasonable acquisition planning and market research. Supp. Protest at 2; Supp. Comments at 2-3. According to the protester, USDA not only failed to seek information regarding the number of small businesses capable of performing the contract, but ignored data in its possession showing the existence of at least six qualified small businesses. Supp. Comments at 3. DNO also complains that the agency did not coordinate the procurement with the Small Business Administration (SBA). Supp. Protest at 3.

The agency contends that it conducted adequate acquisition planning and market research, noting that it published information about the pilot program and sought stakeholder input through nearly eight months of meetings and teleconferences with Michigan and Florida state and local school representatives, fruit and vegetable growers, producers, wholesalers, distributors, and local produce and farming advocates. See Supp. AR at 5; Contracting Officer’s (CO) Supp. Statement at 2-4. The agency asserts that, based on its knowledge and experience, discussions with industry, and research of similar Department of Defense (DOD) procurements, it “does not believe that in general, small business concerns by themselves . . . are capable of fulfilling the requirements of entire school systems on a nationwide basis, and thus cannot fulfill a major component of the pilot program.” AR at 11. According to the agency, the majority of fruits and vegetables for the school lunch program are currently provided by large businesses, and limiting the pilot program to small businesses would greatly restrict opportunities for schools to obtain produce from all available vendors. See CO’s Statement at 10. USDA also states that it does not believe that there is a sufficient number of GAP and GHP certified small growers to meet the supply needs of schools throughout the school year. AR at 13.

Contracting officers generally are required to set aside for small business all procurements exceeding $150,000 if there is a reasonable expectation of receiving fair market price offers from at least two responsible small business concerns. Federal Acquisition Regulation (FAR) § 19.502-2(b). A partial set-aside must be made if a total set-aside is not appropriate, the requirement is severable into two or more economic production runs or reasonable lots, and one or more small business concerns are expected to have the technical competence and productive capacity to satisfy the set-aside portion at a reasonable price. FAR § 19.502-3(a). FAR § 19.202-2 generally requires contracting officers, before issuing solicitations, to make “every reasonable effort to find additional small business concerns” and to maximize small business participation.

As a general matter, we regard such a determination as a matter of business judgment within the contracting officer’s discretion that we will not disturb absent a showing that it was unreasonable. Neal R. Gross & Co., Inc., B-240924.2, Jan. 17, 1991, 91-1 CPD ¶ 53 at 2. However, a contracting officer must make reasonable efforts to ascertain whether it is likely that offers will be received from at least two small businesses capable of performing the work. Safety Storage, Inc., B-280851, Oct. 29, 1998, 98-2 CPD ¶ 102 at 3. Our Office will review a protest to determine whether a contracting officer has made such efforts. Library Sys. & Servs./Internet Sys., Inc., B-244432, Oct. 16, 1991, 91-2 CPD ¶ 337 at 7. In this regard, we have found unreasonable the determination to issue a solicitation on an unrestricted basis where that determination is based upon outdated or incomplete information. McSwain & Assocs., Inc.; Shel-Ken Properties, Inc.; and Elaine Dunn Realty, B-271071 et al., May 20, 1996, 96-1 CPD ¶ 255 at 2-4. While the use of any particular method of assessing the availability of small businesses is not required, and measures such as prior procurement history, market surveys and/or advice from the agency’s small business specialist and technical personnel may all constitute adequate grounds for a contracting officer’s decision not to set aside a procurement, American Imaging Servs., Inc., B-246124.2, Feb. 13, 1992, 92-1 CPD ¶ 188 at 3, the assessment must be based on sufficient facts so as to establish its reasonableness. Safety Storage, Inc., supra.

As part of our development of the record, we received comments from SBA. SBA complains that USDA breached an agreement that the procuring agency had with SBA with respect to conducting fruit and vegetable procurements for schools during the 2011-2012 school year. SBA Report at 14. Specifically, SBA reports that USDA agreed to set aside procurements for apple, blueberry and grape products and to set aside some procurements for carrots. SBA states that USDA’s failure to set aside its purchases of apple, blueberry and grape products under this procurement violates this agreement. Id. at 14-15.

SBA also contends that USDA did not conduct the level of market research necessary to make a reasonable determination about whether two responsible small business concerns would submit offers. Id. at 1. In this regard, SBA states that USDA did not search available small business databases, including SBA’s Dynamic Small Business Search database, despite the ease of doing so. Id. at 6, 11-12. According to SBA, its own search found 536 small businesses that appeared to be eligible vendors, including 339 small businesses under the relevant North American Industry Classification System code. Id. at 11. SBA also identified 43 recent or current federal agency procurements (including a number of DOD procurements) for fruits and vegetables that were set aside for small businesses. Id.

We find from review of the record that the agency did not reasonably consider whether the procurement should be set aside, either exclusively or partially, for small business participation. Although USDA conducted meetings and conference calls with interested stakeholders, and disseminated information about the pilot program, the record shows that little, if any of the agency’s acquisition planning related to consideration of small business participation. Furthermore, while the agency “believes” that small business are not capable of performing the requirements, or that there are insufficient numbers of certified small growers, nothing in the contemporaneous record reflects any analysis or market research in that regard, even though the agency was aware of small business interest in the procurement based on questions submitted by vendors. Instead, the agency’s assertions are based on assumptions, rather than on reasonable efforts to ascertain whether it is likely that offers will be received from at least two small businesses capable of performing the work. Indeed, the agency concedes that there are between six and 13 USDA certified small businesses capable of participating in the procurement. See Supp. AR at 6; Agency Response to SBA’s Comments, attach. B, at 1. USDA’s own documents also state there are currently 45 DOD contracts in place with 38 small business produce wholesalers, including contracts in Florida and Michigan set aside for small growers. AR, Tab E, DOD Fresh Program, at 95, available at www.fns.usda.gov/fdd/programs/dod/.

Moreover, we find no merit in the agency’s suggestion that it need not set aside the procurement for this pilot program, because the goals of the pilot program (to allow maximum flexibility and a full range of sources) do not allow the procurement to be set aside. We are not aware of, nor has the agency identified, any laws or regulations that exempt procurements for pilot programs from the small business set aside requirements. See, e.g., Aalco Forwarding, Inc., et al. B-277241.16, Mar. 11, 1998, 98-1 CPD ¶ 75 (sustaining protest of size of partial set-aside under solicitation for pilot program); see also 2B Brokers et al., B-298651, Nov. 27, 2006, 2006 CPD ¶ 178 (protest that agency initiative to consolidate transportation and freight services was an impermissible bundling under the Small Business Act).

Accordingly, we conclude that USDA failed to make sufficient efforts to ascertain small business capability to perform the contract and did not make a reasonable effort to survey the market to ascertain whether there was a reasonable expectation that two or more responsible small business concerns would submit bids at fair market prices, before issuing the solicitation on an unrestricted basis, and we sustain the protest on this ground. Information Ventures, Inc., B-294267, Oct. 8, 2004, 2004 CPD ¶ 205 at 5 (protest challenging agency determination not to set aside procurement for small business concerns sustained where decision was based on unreasonably limited search of potential small business market); ACCU-Lab Med. Testing, B-270259, Feb. 20, 1996, 96-1 CPD ¶ 106 at 4 (agency did not perform adequate market survey, including a search of a relevant database, even though small businesses showed interest in solicitation, and agency provided no evidence to support its assertion that small businesses lack necessary expertise and will have difficulty meeting performance requirements).  (DNO Inc., B-406256,B-406256.2, Mar 22, 2012)  (pdf)

DMS protests the evaluation of its proposal and the consequent withdrawal of the small business set-aside for line item 6, asserting that its proposal was rejected for “arbitrary reasons.” See Protest at 2.

The evaluation of technical proposals is a matter within the discretion of the contracting agency, since the agency is responsible for defining its needs and the best method of accommodating them. Encorp-Samcrete Joint Venture, B-284171, B-284171.2, Mar. 2, 2000, 2000 CPD ¶ 55 at 4. In reviewing an agency’s evaluation, we will not reevaluate technical proposals, but instead will examine the agency’s evaluation to ensure that it was reasonable and consistent with the solicitation’s stated evaluation criteria and with procurement statutes and regulations. Id. The offeror has the burden of submitting an adequately written proposal, and an offeror’s mere disagreement with the agency’s judgment concerning the adequacy of the proposal is not sufficient to establish that the agency acted unreasonably. PEMCO World Air Servs., B-284240.3 et al., Mar. 27, 2000, 2000 CPD ¶ 71 at 15.

Here, the record establishes that the VA reasonably determined that DMS’s proposal was unacceptable because it failed to meet several of the “go/no-go” evaluation factors. For example, with regard to web-based ordering system capabilities factor, the RFP required an offeror’s system to include an electronic catalog and an inventory management capable of: demand forecasting, calculation of economic order quantity, calculation of safety stock levels, calculation of reorder point, calculation of inventory stock level, and stratified inventory analysis. RFP at 125. The RFP further required offerors to provide with their proposals screen shots and sample reports that show that the inventory management component is capable of these requirements. See RFP at 116-117. In evaluating DMS’s response to this factor, the TEP found:

The offeror was required to provide screen shots and sample reports that showed their inventory management system possessed the capabilities listed . . . Upon accessing the offeror’s electronic system, it was determined that the current system has no existing inventory management capabilities. The proposal provided a concept screen shot of Demand Forecasting and a concept spreadsheet for Inventory Status and Demand Forecast Report. In addition, the concept that was presented failed to include all required components of Inventory Management as specified in the Instructions to Offerors (e.g. Stratified Inventory Analysis). The sample report provided no information or data on the requested components of inventory management as required in the Instructions to Offerors.

AR, Tab 4, DMS Technical Evaluation, at 2.

DMS does not deny, and our review confirms, that its proposal did not provide the required screen shots and sample reports that addressed all of the components required by the web-based ordering systems capabilities evaluation factor. DMS nevertheless advises that it has no current customers that require the level of detail required by the RFP to manage the customers’ inventory, and that it is unlikely that any small business has an inventory system with the capabilities requested by the RFP. DMS asserts that in the absence of a current customer with these requirements, it responded with its concept as to how the information could be provided and agreed in its proposal to provide all the components required by the evaluation factor. See DMS Proposal, Tab 1b, at 22.

As noted above, here the RFP specifically required the offeror to provide in its proposal evidence of a web-based ordering system that possessed electronic catalog and inventory management capabilities and to provide screen shots and sample reports that show that the offeror’s system was capable of meeting all of the VA’s requirements listed in the evaluation factor. DMS admits that its inventory management system did not possess all of the necessary capabilities and that its proposal did not provide all of the information required, but that its proposal promised that its system would be modified to provide all of the required features. Under the circumstances, the agency reasonably found that DMS’s proposal was “no-go” under this factor.

The RFP’s evaluation scheme specifically stated that to be acceptable, an offeror’s proposal must be rated “go” under each of the “go/no-go” evaluation factors in order to be considered acceptable, and that any proposal failing to meet these criteria would be rejected. RFP at 125. Thus, the VA properly rejected DMS’s proposal as technically unacceptable consistent with the terms of the RFP. As a consequence, we find that the VA, in accordance with the cascading evaluation feature properly withdrew the small business set-aside for line item 6 because it did not receive acceptable proposals from two small businesses.  (DMS Pharmaceutical Group, Inc., B-406305, Apr 6, 2012)  (pdf)

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: (1) offers will be received from at least two responsible small business concerns, and (2) that award will be made at a fair market price. While the use of any particular method of assessing the availability of small businesses is not required, the agency must undertake reasonable efforts to locate responsible small business competitors. ViroMed Labs., B-298931, Dec. 20, 2006, 2007 CPD ¶ 4 at 3-4. In making set-aside decisions, agencies need not make actual determinations of responsibility or decisions tantamount to determinations of responsibility; rather, they need only make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract. Ceradyne, Inc., B-402281, Feb. 17, 2010, 2010 CPD ¶ 70 at 4. Because a decision whether to set aside a procurement is a matter of business judgment within the contracting officer's discretion, our review is limited to determining whether that official abused his or her discretion. Ceradyne, Inc., supra; Vox Optima, LLC, B-400451, Nov. 12, 2008, 2008 CPD ¶ 212 at 5.

The CO here concluded that there was a reasonable expectation of receiving proposals from three responsible offerors, each of whom confirmed to the CO their interest in submitting a proposal: R/X Automation, [deleted], and [deleted]. AR, Tab 5, Set-Aside D&F, at 1; Supp. CO Statement at 1-3. The CO also concluded that the award was expected to be made at a fair market price. AR, Tab 5, Set-Aside D&F, at 1-2; Supp. CO Statement at 3-4.

Expectation of Two or More Proposals

KNAPP contends that the VA did not reasonably identify two or more small businesses that were capable of performing the agency’s requirements. As an initial matter, the VA contends--and the protester does not dispute--that the CO reasonably expected that the agency would receive a proposal from R/X, the awardee under the unrestricted procurement. AR, Tab 5, Set-Aside D&F, at 1. We therefore address the CO’s determinations with regard to the other two potential small business offerors identified in the set-aside D&F.

With regard to [deleted], the CO acknowledges that although the firm had submitted a proposal in response to the prior competition, the proposal had been found technically unacceptable. Supp. CO Statement at 2. The CO also states, however, that [deleted] was provided a post-award debriefing that identified the weaknesses and deficiencies in its proposal. Id. For this reason, the CO “anticipated that following the detailed debriefing [deleted] would address all of VA’s concerns in the current solicitation.” Id.

KNAPP contends that the CO could not reasonably find that [deleted]’s post-award debriefing would enable the firm to overcome the weaknesses and deficiencies in its technical proposal. As discussed above, however, a CO need only make a reasonable business judgment that a prospective offeror capable of performing the work is likely to submit a proposal; the CO is not required to conduct an actual determination of responsibility as part of this review. ViroMed Labs., supra; Ceradyne, supra. Here, the CO reasonably exercised his business judgment in concluding that the debriefing provided to [deleted] would permit the firm to submit an acceptable proposal. On this record, the protester’s disagreement with the agency’s judgment does not provide a basis to sustain the protest.

With regard to [deleted], the CO states that the prospective offeror submitted a statement of capabilities and expressed its interest in participating in the competition. Supp. CO Statement at 2. The CO noted that [deleted] “made numerous different conveyor and robotic systems for a large variety of industries,” and had performed contracts involving medical supplies and pharmaceuticals, including automated order fulfillment systems. Id. at 2-4. Based on the capabilities statement, the CO concluded that the prospective offeror “demonstrated significant experience in the commercial sector” and it would be able to meet the agency’s requirements. Id.

KNAPP argues that [deleted] does not currently provide a TCA and has never performed the specific work required under the solicitation. The protester further argues that the statement of capabilities did not provide an adequate basis for the CO to conclude that [deleted] would submit an acceptable proposal because the firm had not reviewed the statement of work.

Nothing in the FAR requires a CO to consider only those prospective offerors who have successfully completed the identical requirements to be performed under the set-aside contract, nor does the FAR require a CO to exclude from consideration prospective offerors who have not reviewed a proposed statement of work. Instead, as discussed above, the CO may use any reasonable method to identify responsible prospective offerors. ViroMed Labs., supra. Here, the CO reasonably considered [deleted]’s statement of capabilities, and concluded that its experience performing automation and order fulfillment systems for commercial customers provided an adequate basis to expect that the firm would submit an acceptable proposal. On this record, the protester’s disagreement with the agency’s judgment does not provide a basis to sustain the protest.

Award at a Fair Market Price

Next, KNAPP argues that the CO did not have adequate information to conclude that award would be made at a fair market price. Specifically, the protester contends that the agency did not receive proposed prices from [deleted] or [deleted], or otherwise identify sufficient information to support the CO’s conclusion.

The CO’s set-aside D&F stated that a fair market price was anticipated because “[t]he national market has [] several companies available to fill this requirement,” and “[t]his is a highly competitive market.” AR, Tab 5, Set-Aside D&F, at 2. In response to the protest, the CO further explained that he anticipated that [deleted] would submit a proposal at a fair market price based on its similar contracts for the private sector. Supp. CO Statement at 3. The CO also stated that he intended to rely upon price competition to determine, for purposes of award, whether the proposed prices were reasonable. Id. at 4, citing FAR 15.404-1(b)(2)(i).

As our Office has held, a CO may reasonably rely on an expectation that there will be adequate price competition to conclude that the competition will result in a fair market price. National Linen Serv., B-285458, Aug. 22, 2000, 2000 CPD ¶ 138 at 3. In this regard, the FAR provides that adequate price competition exists where two or more responsible offerors submit proposals that satisfy the government’s requirements, award is based on a best value evaluation where price is a substantial factor, and the price of the successful offeror is not unreasonable. FAR §§ 15.403-1(c)(1); 15.404-1(b)(2)(i). A CO may reasonably rely on information concerning prior procurements, as well as the expectation of adequate price competition, to conclude that a procurement set aside for small businesses will be made at a fair market price. Based on this record, we think that the CO reasonably relied on the fact that R/X had been previously awarded the contract at a fair and reasonable price, and his conclusion concerning the prospective offerors’ commercial experience, to conclude that there was an expectation of adequate price competition, and therefore an award at a fair market price. See National Linen Serv., supra, at 3-4.  (KNAPP Logistics Automation, Inc., B-406303, Mar 23, 2012)  (pdf)

In its initial protest, Six3 argued that a small business meeting the specified size standard of $7 million could not possibly have the personnel required to meet the solicitation's requirements; it was unlikely that a small business would be capable of successfully deploying qualified personnel immediately after award due to high demand for individuals with the required skill sets; small businesses were unlikely to have the infrastructure necessary to recruit, train, and manage the necessary personnel; and small businesses were not financially capable of performing. The protester further argued that the sources sought notice failed to elicit information that INSCOM needed to assess the capability of small businesses to perform, and that the small businesses might be intending to rely on large business partners to an improper extent.

The agency responded to these arguments in its report, maintaining that both [deleted] and [deleted] were rapidly growing companies that had demonstrated the capability to take on larger workloads; the protester had failed to furnish any support for its claim that small businesses were unlikely to be able to deploy qualified personnel (and to the extent that there was any validity to the protester's argument regarding high demand for personnel with biometrics-related qualifications, it would apply equally to large businesses); the protester had presented no evidence that small businesses lack the infrastructure to recruit, train, and manage employees and subcontractors, and the protester's own experience demonstrated that it was possible for a small business to gear up for a substantially increased workload quickly; and the protester's argument that small businesses lacked the financial resources for performance was speculative. The agency further argued that the contracting officer had reviewed sufficient information to allow her to make an informed business judgment that offers from at least two small businesses that were capable of performing could reasonably be expected, and that the protester's argument regarding improper reliance upon large business partners was speculative.

In commenting on the agency report, the protester did not seek to rebut the Army's responses to the above arguments, but instead challenged the reasonableness of the contracting officer's finding that [deleted] and [deleted] were capable of satisfying the RFP's requirements. In this connection, the protester asserted that to set aside the procurement for small business, the contracting officer had to determine that offers would be obtained from at least two responsible small businesses, and that to be determined responsible, prospective contractors had to demonstrate, among other things, a satisfactory performance record and the necessary organization, experience, and technical skills to perform, or the ability to obtain them. Protester's Comments at 9. Six3 contends that the contracting officer did not reasonably assess whether [deleted] and [deleted] had the skills, experience, and organization necessary for successful performance, and that the record does not contain evidence supporting the contracting officer's conclusion that both companies had good past performance.

At the outset, we note that the protester incorrectly asserts that before making a small business set-aside determination, a contracting officer must determine that offers will be received from two or more responsible small businesses. The FAR does not require a determination that offers will be received from two or more responsible small businesses--it requires only a determination that offers from two or more responsible small businesses may reasonably be expected. Moreover, in making set-aside decisions, agencies need not make either actual determinations of responsibility or decisions tantamount to determinations of responsibility with regard to prospective offerors; they need only make an informed business judgment that there are small businesses expected to submit offers that are capable of performing. ViroMed Labs., supra, at 3-4.

In our view, the record here demonstrates a reasonable basis for the contracting officer's conclusion that both [deleted] and [deleted] are capable of performing. In their responses to the sources sought notice, prospective offerors were asked to self assess their teams' skill level in each of ten biometric functional areas on a scale of 1-5, with 1 representing little or no experience and 5 representing a high level of experience. [Deleted] represented that its team had a skill level of 4 or 5 in eight of the required functional areas, and a skill level of 3 in a ninth area, whereas [deleted] represented that its team had a skill level of 4 or 5 in nine of the required functional areas, and a skill level of 3 in the tenth area. The contracting officer found that both companies had grown significantly in the past year, demonstrating, in her view, that they were capable of taking on a sizeable workload increase and enlarging their operations to meet the requirements of the RFP. The contracting officer also found that both had good past performance, both had provided fair and reasonable pricing on other government contracts, and neither had delinquent federal debt.

Six3 also alleges that [deleted] no longer qualifies as a small business because its average annual revenue for the past 3 years has exceeded $7 million. According to the protester, the contracting officer should have recalculated [deleted] average annual receipts in July 2011 using information regarding recent sales that [deleted] had posted on its website. We disagree. [Deleted] represented in its response to the sources sought notice that it was a small business under NAICS code 541690 and a service-disabled, veteran-owned small business, and that it was not scheduled to graduate from any small business programs within the next 365 days; moreover, the contracting officer verified that [deleted] continued to be certified as a small business when she conducted her summer-2011 market research. The contracting officer's reliance upon [deleted] self-representations and information available in the Dynamic Small Business database was clearly reasonable.

Finally, Six3 argues that the contracting officer did not adequately document the basis for her finding that there was a reasonable expectation of award at fair market prices. We disagree. The contracting officer found that both [deleted] and [deleted] had provided fair and reasonable pricing under other government contracts, including an INSCOM multiple-award ID/IQ contract with an overall value of $492 million (the "Omnibus III" contract), and that it was evident from their work on the Omnibus III contract that "both [deleted] and [deleted] [were] able to provide fair market support to large requirements in both a U.S. and overseas setting." Contracting Officer's Memorandum for Record, Aug. 22, 2011, at 8. We think that it was reasonable for the contracting officer to conclude, based on the two offerors' general history of providing fair and reasonable pricing and on their specific history of providing fair and reasonable pricing under the Omnibus III contract, which has similarities to the contract here, that award at fair market prices could be expected here. We also note that the task orders to be issued under the multiple-award contract here will be competed among the awardees, and that the agency thus has a reasonable basis to anticipate price competition, resulting in fair market prices, for the task orders.  (Six3 Systems, Inc., B-404885.2, October 20, 2011)  (pdf)

The protesters contend that the decision to conduct this competition among FSS vendors using FAR part 8 procedures violates the small business set-aside requirements of the Small Business Act, 15 U.S.C. sect. 644(a), as implemented by FAR sect. 19.502-2(b). The cited FAR provision implements the Act by generally requiring an agency to set aside acquisitions with an anticipated dollar value of more than $100,000, such as the one here, for small businesses where there is a reasonable expectation of receiving fair market prices from at least two small business concerns (the so-called "Rule of Two"). The protesters contend that the agency is required to evaluate whether the Rule of Two is satisfied (and if so, set aside the solicitation for small businesses) before purchasing needed goods or services though the FSS program. Protest at 5-8; Comments at 9-10.

The regulations implementing the Small Business Act and GSA's FSS Program expressly anticipate and exclude FSS buys from set-aside requirements. FAR sections 8.404(a), 19.502-1(b), 38.101(e); Future Solutions, Inc., B‑293194, Feb. 11, 2001, 2004 CPD para. 39 at 3. In this regard, FAR sect. 8.404(a) and sect. 38.101--both of which pertain to FSS contracting--provide that FAR part 19, pertaining to small business programs, do not apply to BPAs or orders placed against FSS contracts. Similarly, FAR sect. 19.502-1(b), which implements small business requirements, also confirms that set-aside provisions do not apply to FSS buys.

Despite the clear language of these FAR provisions, the protesters argue that the provisions are inapplicable here. Specifically, the protesters rely on introductory provisions in FAR sect. 8.002(a), which state that "except as . . . otherwise provided by law, agencies shall satisfy requirements for supplies and services from" FSS vendors (among other sources). In their view, the Small Business Act, as implemented through the set-aside requirements of FAR sect. 19.502-2(b)--i.e., the Rule of Two--is "otherwise provided by law" and takes precedence over FSS purchases. Comments at 11; Supplemental Comments at 4-5. We find these arguments unpersuasive.

Nothing in the Small Business Act suggests or requires that the Rule of Two--which is set forth in the regulations that implement that Act (but is not found in the Act itself), see Delex Sys., Inc., B-400403, Oct. 8, 2008, 2008 CPD para. 181 at 6-7--takes precedence over the FSS program. To the contrary, and as noted above, the implementing regulations for the small business set-aside program and the FSS program expressly provide that set-aside requirements for the program do not apply to FSS buys. See FAR sections 8.404(a), 19.502-1(b), 38.101(e). Accordingly, we conclude that the Small Business Act and its implementing regulations do not impose a requirement on agencies to first evaluate whether a solicitation should be set-aside for small businesses before purchasing the goods or services through the FSS program.

The protests are denied.  (Edmond Computer Company; Edmond Scientific Company, B-402863; B-402864, August 25, 2010)  (pdf)

The protester argues that the agency should have set aside the acquisition, either totally or in part, for exclusive small business participation.

Under FAR sect. 19.502-2(b), a procurement with an anticipated dollar value of more than $100,000 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. That is, an acquisition must be set aside where there is a reasonable expectation that two or more acceptably priced offers will be received from small business concerns that are capable of performing the contract. ViroMed Laboratories, B-298931, Dec. 20, 2006, 2007 CPD para. 4 at 3. A partial set-aside must be made if a total set-aside is not appropriate, the requirement is severable into two or more economic production runs or reasonable lots, and one or more small business concerns are expected to have the technical competence and productive capacity to satisfy the set-aside portion at a reasonable price. FAR sect. 19.502-3(a). While the use of any particular method of assessing the availability of small businesses is not required, the agency must undertake reasonable efforts to locate responsible small business competitors. ViroMed Laboratories, supra, at 3-4. Because a decision whether to set aside a procurement (either totally or partially) is a matter of business judgment within the contracting officer's discretion, our review is limited to determining whether that official abused his or her discretion. Ceradyne, Inc., B‑402281, Feb. 17, 2010, 2010 CPD para. 70 at 4; Vox Optima, LLC, B‑400451, Nov. 12, 2008, 2008 CPD para. 212 at 5.

Here, while the protester challenges at length the contracting officer's conclusions regarding its own capability to perform at least 50 percent of the services in question, it has not challenged the contracting officer's conclusions regarding the capabilities of the other small business respondents, other than to assert that (1) the Navy's assessment was based on incomplete information because none of the small businesses had access to the software source code at the time they responded to the sources sought notice and (2) the agency evaluated responses to the notice on the basis of overstated technical requirements not included in the RFP itself.

In response to the first allegation, the agency explained that access to the source code was not required for a firm to respond to the sources sought notice because the notice focused primarily on fundamental capabilities and experience developing, testing, porting, and certifying, rather than on actual technical approaches or solutions. Agency Report at 15-16. We think that the agency's explanation is reasonable; moreover, the protester did not take issue with or otherwise seek to rebut it in its comments.[5] We will not consider the protester's second argument because it was not raised in a timely manner. That is, the argument, which was not raised until June 7, is based on information furnished to the protester at its April 9 debriefing and on the contents of the RFP, which was issued on April 26 and amended on May 20 and May 25. See Bid Protest Regulations, 4 C.F.R. sect. 21.2(a)(2) (2010) (protests based on other than a solicitation impropriety must be raised within 10 days after the basis of protest is, or should have been, known).

In sum, because the record fails to demonstrate that small business concerns were denied access to information necessary for the preparation of responses to the sources sought notice, and the protester has not raised any other timely challenges to the agency's findings pertaining to small businesses other than itself, Metasoft has not shown that the contracting officer abused his discretion in concluding that offers from at least two capable small business offerors could not be expected.  (Metasoft, LLC, B-402800, July 23, 2010)  (pdf)

In its protest, Ceradyne principally argues that the agency’s decision to set aside delivery order No. 9 for the small business ID/IQ contract holders (Armacel and ArmorWorks) was unreasonable because the Army failed to consider the capability of the small business concerns in making its set-aside decision. According to Ceradyne, neither firm has performed contracts of the magnitude required under delivery order No. 9. Specifically, Ceradyne alleges that both Armacel’s and ArmorWorks’ largest delivery orders under their [Small Arms Protective Inserts] SAPI ID/IQ contracts are, respectively, approximately 1/3 and less than 10 percent of the value for delivery order No. 9. In addition, Ceradyne suggests that both firms have had performance problems under their current ID/IQ contracts as reflected by the fact that the Army has, in some instances, extended delivery schedules for orders issued under these contracts.

Pursuant to FAR sect. 19.502--2(b), a procurement with an anticipated dollar value of more than $100,000 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. Often referred to as the “rule of two,” these set-aside provisions apply to competitions for task and delivery orders issued under multiple-award contracts, such as the ID/IQ contracts at issue in this protest. See Delex Sys., Inc., B-400403, Oct. 8, 2008, 2008 CPD para. 181 at 5-10. Agencies are not required to use a particular method to assess the availability of small businesses; rather, an agency need only undertake reasonable efforts to locate responsible small business competitors. Because a decision whether to set aside a procurement is a matter of business judgment within the contracting officer’s discretion, our review generally is limited to ascertaining whether that official abused his or her discretion. ViroMed Laboratories, B-298931, Dec. 20, 2006, 2007 CPD para. 4 at 3-4. We will not question a small business set-aside determination where the record shows that the evidence before the contracting officer was adequate to support the reasonableness of the conclusion that small business competition reasonably could be expected. Id.

Here, Ceradyne’s arguments essentially challenge the responsibility of Armacel and ArmorWorks. As noted above, Ceradyne questions the capability of the small business ID/IQ contract holders to successfully perform requirement No. 9. According to Ceradyne, given the size of requirement No. 9, as well as concerns regarding the ability of Armacel and ArmorWorks to timely perform other delivery orders, the Army should not have set aside requirement No. 9 based solely on the representations of these firms regarding their respective production capacity. Ceradyne’s arguments, however, are misplaced under the circumstances here.

Generally, responsibility is a contract formation term that refers to the ability of a prospective contractor to perform the contract for which it has submitted an offer, and, by law, a contracting officer must determine that an offeror is responsible before awarding it a contract. See 41 U.S.C. sect. 253b(c), (d); FAR sect. 9.103(a), (b), Advanced Tech. Sys., Inc., B-296493.6, Oct. 6, 2006, 2006 CPD para. 151 at 5. Once an offeror has been determined to be responsible and is awarded a contract, as is the case with Armacel and ArmorWorks, both of which were found responsible when they were awarded their underlying ID/IQ contracts, there is no requirement that an agency make additional responsibility determinations during contract performance, i.e., when placing individual delivery orders under an existing ID/IQ contract. See FAR sect. 16.505; ESCO Marine, Inc., B-401438, Sept. 4, 2009, 2009 CPD para. 234 at ___; Advanced Tech. Sys., Inc., supra.

Moreover, in making set-aside decisions, agencies need not make actual determinations of responsibility or decisions tantamount to determinations of responsibility; rather, they need only make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract. ViroMed Laboratories, supra. In the context of a multiple-award ID/IQ contract, where there are at least two small business contract holders, as in this case, the agency’s inquiry properly may be of limited scope, since the agency has already identified responsible small business concerns for award of task or delivery orders under the umbrella ID/IQ contract. Thus, where an agency receives expressions of interest from the small business contract holders and they represent their ability to perform requirements that the agency intends to order, the agency has a reasonable basis upon which to conclude that the “rule of two” has been met. While Ceradyne maintains that the Army should not have relied on the production capacities claimed by Armacel and ArmorWorks, in the absence of evidence of misrepresentation by these firms, we do not think the Army had a duty to subject these representations to a greater level of scrutiny. ViroMed Laboratories, supra.  (Ceradyne, Inc., B-402281, February 17, 2010)  (pdf)

EMMES argues that the agency unreasonably determined that it and the other small business concern could not perform the work. In this regard, EMMES notes that the agency had found that it was "capable of fulfilling the 16 functions described in the solicitation," and that the firm "has the facilities, equipment and resources necessary for the performance requirements delineated in the sources sought notice," and concludes that the agency should have found EMMES to be a responsible small business capable of performing the work. Instead, EMMES argues, the agency improperly relied on experience alone in determining that the firm is not fit to perform the work, and, in doing so, engaged in a "de facto" non-responsibility determination.

We do not agree that NIH could not consider EMMES's and the other small business firm's experience in assessing their capability to perform. See ViroMed Labs., B‑298931, Dec. 20, 2006, 2007 CPD para. 4 at 3‑4; Information Ventures, Inc., B‑279924, Aug. 7, 1998, 98-2 CPD para. 37 at 3 (in determining the availability of responsible small business concerns for set‑aside purposes, the contracting agency's investigation goes not only to the existence of the businesses, but also to their capability to perform the contract). In this regard, the agency need not make either an actual determination of responsibility or a decision tantamount to a determination of responsibility, but must make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from two small business concerns that are capable of performing the contract. The considerations relevant to this judgment may be similar to responsibility standards. Railroad Constr. Co., Inc., B-249748.3, Dec. 29, 1992, 92-2 CPD para. 446 at 5. In the final analysis, the set-aside decision necessarily entails consideration of whether small businesses can be expected to perform satisfactorily; if the agency reasonably determines that they cannot, a set‑aside is not warranted.

We also do not agree with EMMES that the agency's review (in response to the sources sought notice) of the small business concerns' experience in performing the requirement reflected requirements that exceeded the RFP's scope of the work. See Comments at 2. Here, the RFP specifically provided for an evaluation of offerors' experience in performing the overall requirement. See AR, Tab 10, RFP at 84. Moreover, the RFP's statement of work laid out, in greater detail, the same 16 tasks described in the sources sought notice. AR, Tab 10, RFP, attach. 3, Statement of Work, at 6‑13. Although the RFP provided that experience would be weighted 20 percent in the technical evaluation, this does not show that the lack of experience in performing the overall requirement could not be considered in NIH's assessment of the firm's capability to perform the contract.

EMMES also challenges NIH's conclusion that, although the protester and the small business firm likely could "perform most of the functions performed by a traditional coordinating center," neither had demonstrated that they had experience as a coordinating center of the size and type being procured here, and a set-aside therefore was not warranted.EMMES complains that NIH unreasonably found that EMMES had not provided evidence that the firm had ever been involved in conducting or coordinating multiple large epidemiologic studies and complex survey studies, both in the collection of epidemiologic data from multiple sites and experience in monitoring the quality and timeliness of such data from a large number of individuals. See AR, Tab 7, Program's Review of the Small Business Capability Statements, at 6. EMMES asserts that the agency has overlooked its experience with the [DELETED]--one of the projects listed in a chart contained in the capability statement--which consisted of a multicenter, multiprotocol epidemiologic and clinical trial research program of human blood products.

We find no basis in the record to conclude that NIH unreasonably assessed EMMES's experience. EMMES did not highlight the [DELETED] or provide any explanation or description for why the work the firm did there was relevant to the work being procured here. The capability statement merely listed the study under a table of current and selected completed projects, without any explanation. Even assuming that the study consisted of a multi-center, multi‑protocol epidemiologic research program involving blood that demonstrated relevant experience, we find no reason for the agency to have credited EMMES with this experience, given EMMES lack of explanation in its capability statement.  (EMMES Corporation, B-402245; B-402245.2, February 17, 2010) (pdf)

Under Federal Acquisition Regulation (FAR) sect. 19.502-2(b), a procurement with an anticipated dollar value of more than $100,000, such as the one here, must be set aside exclusively for 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. The use of any particular method of assessing the availability of small businesses is not required so long as the agency undertakes reasonable efforts to locate responsible small business competitors. National Linen Serv., B-285458, Aug. 22, 2000, 2000 CPD para. 138 at 2<. 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. Commonwealth Home Health Care, Inc., B-400163, July 14, 2008, 2008 CPD para. 140 at 3; National Linen Serv., supra, at 2. Because a decision whether to set aside a procurement is a matter of business judgment within the contracting officer’s discretion, our review generally is limited to ascertaining whether that official abused his or her discretion. Admiral Towing and Barge Co., B‑291849, B-291849.2, Mar. 6, 2003, 2003 CPD para. 164 at 3-4. We will not question a small business set-aside determination where the record shows that the evidence before the contracting officer was adequate to support the reasonableness of the conclusion that small business competition reasonably could be expected. Commonwealth Home Health Care, Inc., supra, at 3.

Med-South contends that the VA’s market research was inadequate and does not demonstrate that at least two small businesses can satisfy the RFP’s requirements. However, our review confirms both the adequacy of the market research and the reasonableness of the agency’s decision to set aside the procurement for small businesses. In this regard, the record shows that the contracting officer surveyed the market by searching established databases to identify small businesses in the industry, researched those firms, and sought the advice of the Office of the Small Disadvantaged Business Utilization (OSDBU). The contracting officer also reviewed GAO bid protest decisions challenging similar solicitations for home oxygen, including one where the GAO upheld the decision to set aside the procurement for small business. Based on this information, the contracting officer concluded, and the OSDBU concurred, that the VA would likely receive offers from at least two small businesses that were capable of performing the work at a fair and reasonable price. We note, also, that the VA reports that it received offers from three small businesses in response to the solicitation. Agency Report at 3.

Based on this market research, we find the agency’s decision to set aside the procurement for small businesses to be reasonable. While the protester argues that the agency should have verified the capabilities of the small businesses identified as potential offerors, it has not provided any credible evidence to show that the market research was inadequate or flawed.  (Med-South, Inc., B-401214, May 20, 2009)  (pdf)

IVI contends that the agency improperly failed to set aside this procurement for small businesses, alleging that the agency's market research was flawed and does not support the determination to issue the solicitation on an unrestricted basis. Acquisitions with an anticipated dollar value of more than $100,000, such as the one here, must be set aside for small businesses if the agency makes two determinations, only the first of which is at issue here: that there is a reasonable expectation that offers will be received from two or more responsible small business concerns, and that award will be made at a fair market price. Federal Acquisition Regulation sect. 19.502-2(b); American Artisan Prods., Inc., B-292380, July 30, 2003, 2003 CPD para. 132 at 5-6.

The determination as to whether there is a reasonable expectation of receiving offers from two or more small businesses that are capable of performing the required work is a matter of business judgment within the contracting officers discretion that we will not disturb absent a showing that it was unreasonable. ViroMed Labs., B-298931, Dec. 20, 2006, 2007 CPD para. 4 at 3-4; Information Ventures, Inc., B-279924, Aug. 7, 1998, 98-2 CPD para. 37 at 3. While the use of any particular method of assessing the availability of capable small businesses is not required, 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, may all constitute adequate grounds for a contracting officer’s decision not to set aside a procurement. Quality Hotel Westshore; Quality Inn Busch Gardens, B-290046, May 31, 2002, 2002 CPD para. 91 at 3-4.

Here, IVI alleges that the agency's market research is flawed in a number of ways. For instance, the protester contends that the capability statements were evaluated by the agency "as if they were proposals," Protest at 2; that the agency unreasonably evaluated the small businesses’ ability to "perform each and every task" listed in the sources sought notice; and that the agency used undisclosed needs contained in the prior contract to evaluate the capability statements received. Protester's Comments at 6-9. These arguments do not provide a basis to sustain the protest. Rather, the record establishes that the agency did in fact conduct adequate market research to determine whether it was reasonable to set aside the acquisition for small business concerns.

As discussed above, the agency's determination was based on its review of the information provided by small business concerns in their responses to the "sources sought" notice and review of the procurement history for these or similar services. Moreover, the record confirms that the agency's small business specialist and the SBA's PCR were integrated in the contracting officer's decision-making process and they both concurred with his business judgment that the requirement should be competed on an unrestricted basis. While the protester argues that this determination was unreasonably based on a flawed research analysis, the protester has produced no credible evidence to support any of its allegations.

As a specific example, the protester argues that it was not reasonable for the agency to consider during its review whether the small business respondents had experience providing similar services. In this regard, the protester argues that the small business firms could have supplemented their experience with consultants, or other vendors. Protester's Comments at 7. While we agree with the protester that small businesses might be able to supplement their experience with consultants--and, in fact, a prior small business vendor providing these services might have done exactly that--we will not conclude that the agency violated a procurement law or regulation--the standard we must apply to sustain this challenge--in performing this review. In short, we are not prepared to conclude that it was improper for the agency to assess whether the small business respondents had experience similar to the required services here, and we note for the record, the agency’s SBA representatives were unwilling to do so as well.  (Information Ventures, Inc., B-400604, December 22, 2008) (pdf)

Applicability of the Rule of Two

As set forth above, the Navy raises a threshold question, i.e., whether FAR sect. 19.502‑2(b) (the Rule of Two) applies to the placement of task and delivery orders under multiple‑award contracts. In the Navy’s view, set-aside requirements apply only to initial contract awards, and not to orders under multiple-award ID/IQ contracts.

The Navy’s argument, in essence, is that an agency’s obligation to follow the requirements of FAR Subpart 19.5 springs from, and is driven by, its obligation to follow the requirements for full and open competition set forth in FAR Part 6. Thus, the Navy notes that FAR sect. 6.203(c) requires contracting agencies to follow FAR Subpart 19.5, which governs small business set-asides. When an agency is placing task and delivery orders under a multiple-award contract, however, the Navy notes that FAR sect. 16.505(b)(1)(ii) advises that “the competition requirement in [FAR] Part 6 do[es] not apply to the ordering process.” Thus, the Navy contends, since FAR Part 6 contains the requirement that agencies comply with FAR Subpart 19.5 (which contains the Rule of Two, sect. 19.502-2(b)), and since agencies are exempted from the requirements of FAR Part 6 when placing task and delivery orders, there is no requirement for agencies placing such orders to comply with FAR Subpart 19.5. Navy Memorandum of Law, at 25-26 (July 24, 2008). We disagree.

As a preliminary matter, the requirements addressed in the Navy’s argument, synopsized above, are not simply matters of regulation; most of them are matters of statute. For example, the regulations for using full and open competition set forth in FAR Part 6 are implementing the requirements for competition set forth in the Competition in Contracting Act of 1984 (CICA). 10 U.S.C. sect. 2304(a)(1)(A) (2000). Likewise, the regulations for using multiple-award ID/IQ contracts in FAR Subpart 16.5 are implementing the requirements of the Federal Acquisition Streamlining Act of 1994 (FASA). 10 U.S.C. sect. 2304a(d) (2000). And, of particular importance to this discussion, the regulations for awarding contracts to small businesses set forth in FAR Subpart 19.5, are implementing the requirements of the Small Business Act. 15 U.S.C. sect. 644(a) (2000).

As the SBA points out in its brief, the oldest of these statutory enactments, the Small Business Act, states that small businesses:

shall receive any award or contract or any part thereof, and be awarded any contract for the sale of Government property, as to which it is determined by the Administration and the contracting procurement or disposal agency (1) to be in the interest of maintaining or mobilizing the Nation’s full productive capacity, (2) to be in the interest of war or national defense programs, (3) to be in the interest of assuring that a fair proportion of the total purchases and contracts for property and services for the Government in each industry category are placed with small-business concerns, or (4) to be in the interest of assuring that a fair proportion of the total sales of Government property be made to small-business concerns; ….

15 U.S.C. sect. 644(a). As is evident from the text quoted above, the Small Business Act does not, on its face, enunciate the Rule of Two. Instead, as discussed below, the rule was established to implement the Act.

The origin of the Rule of Two predates the FAR; when the FAR was promulgated, the Office of Federal Procurement Policy (OFPP) prepared a Federal Register notice seeking comments on the rule’s inclusion in the new government-wide procurement regulation. 49 Fed. Reg. 40135 (Oct. 3, 1984). This notice explains that the Rule of Two is intended to implement the Small Business Act language in 15 U.S.C. sect. 644(a), quoted above, requiring that small businesses receive a “fair proportion of the total purchases and contracts for property and services for the Government.” Id. In addition, the notice advised that, in the view of OFPP, “the FAR language complies with current law and reflects the will of the Congress as expressed in the Small Business Act.” Id. Thus, while the Rule of Two is not specifically set out in the Small Business Act, it has been adopted as the FAR’s implementation of the Act’s requirements through notice and comment rulemaking.

We note next that when CICA was enacted in 1984, and when FASA was enacted in 1994, both statutes expressly recognized that their requirements were to be harmonized with existing statutes. See 10 U.S.C. sect. 2304 (a)(1) (CICA) and 10 U.S.C. sect. 2304a(a) (FASA). This explains, for example, why the “full and open” competition requirements of CICA can be harmonized with the FAR Rule of Two provision (which restricts competition, where the Rule of Two is met), since the latter implements the Small Business Act. Moreover, nothing in CICA or FASA would exempt task or delivery orders--and certainly nothing explicitly exempts them--from the requirements of FAR sect. 19.502-2(b).

With respect to the Navy’s contention that FAR sect. 16.505(b)(1)(ii) exempts task and delivery orders from the requirements of FAR Subpart 19.5, we think the Navy overreads the provision. When an agency is placing task and delivery orders under multiple‑award contracts, it cannot, by definition, hold a full and open competition as described by FAR Part 6. This is because a contractor’s eligibility for future task and delivery orders is established by its receipt of one of the underlying awards; once the multiple‑award contract is established, contractors who have not received an award have no vehicle (i.e., no contract) which they can use to compete for the placement of orders. Thus, in our view, the opening sentence of FAR sect.16.505(b)(1)(ii)--i.e., “[t]he competition requirements in Part 6 and the policies in Subpart 15.3 do not apply to the ordering process”--means only what it says: that the competition requirements of Part 6 do not apply to ordering. In short, without an express waiver of the requirements of the Small Business Act (implemented here by the Rule of Two), we have no basis to conclude that this limited, and appropriate, exemption from the requirements of full and open competition in FAR Part 6 can exempt agencies from the requirements of FAR sect. 19.502-2(b) when placing orders.

The Navy also argues that Congress has never indicated that the small business set‑aside requirements apply to the placement of task and delivery orders, despite numerous opportunities to do so in the years since the passage of FASA. Navy Memorandum of Law at 24-25 (July 24, 2008). In our view, this logic provides no basis for concluding that Congress intended that the small business set-aside requirements do not apply to FASA’s authorization of the use of task and delivery order contracts. In fact, we think the Navy’s argument is not supported by the facts.

The SBA points out that section 816 of the National Defense Authorization Act for FY 2006, Pub. L. No. 109-163, required the Secretary of Defense to issue guidance on the use of tiered evaluation schemes (sometimes referred to as “cascading set-aside clauses”) for assessing offers for contracts and task and delivery orders. We note in particular that this enactment prescribes a prohibition on the use of such schemes unless a contracting officer has

conducted market research in accordance with part 10 of the Federal Acquisition Regulation in order to determine whether or not a sufficient number of qualified small businesses are available to justify limiting competition for the award of such contract or task or delivery order under applicable law and regulations.

Pub. L. No., 109-163, sect. 816(b)(1). While this provision does not expressly state that the small business set-aside requirements of FAR sect. 19.502-2(b) are applicable to the placement of orders under ID/IQ contracts, it clearly indicates that Congress recognizes the possibility of limiting competition for task and delivery orders to small businesses when there is a sufficient number of small businesses to justify doing so. This provision also recognizes that there will be instances where the number of qualified small businesses will justify limiting competition pursuant to applicable law and regulations.

In our view, the legal question is whether the Rule of Two, which by its terms applies to “any acquisition over $100,000,” FAR sect. 19.502-2(b), applies to individually competed task or delivery orders under multiple-award contracts. We conclude that it does, because, at least for purposes of this analysis, those orders are properly viewed as “acquisitions.” We have previously concluded that a delivery order placed under an ID/IQ contract is, itself, a “contract,” at least for some purposes, see FAR sect. 2.101, and contracts are covered by the definition of “acquisition” in FAR sect. 2.101. Letters to the Air Force and Army concerning Valenzuela Engineering, Inc., 98-1 CPD para. 51 (Letter to the Air Force at n.1). Competitions for task and delivery orders are the stage when holders of multiple-award ID/IQ contracts offer prices and solutions to meet specific agency needs. This is therefore the most meaningful stage for a Rule of Two analysis, in which the contracting officer needs to judge the likelihood of receiving at least two fair-market priced submissions from small businesses for the services or supplies being acquired under a specific solicitation. In sum, we conclude that individually-competed task and delivery orders are “acquisitions” for purposes of FAR sect. 19.502‑2(b), so that the Rule of Two applies. 

Reasonable Expectation of Offers from Two or More Small Businesses

Next, as to the agency’s decision that it does not expect to receive two or more offers from small businesses, Delex argues that the decision was unreasonable. Our Office generally regards a set-aside determination as a matter of business judgment within the CO’s discretion which we will not disturb absent a showing that it was unreasonable. Neal R. Gross & Co., Inc., B-240924.2, Jan. 17, 1991, 91-1 CPD para. 53 at 2. While the use of any particular method of assessing the availability of firms is not required, measures such as prior procurement history, market surveys, and advice from the appropriate small business specialists may all constitute adequate grounds for a CO’s decision to set aside, or not to set aside, a procurement. American Imaging Servs., Inc., B-246124.2, Feb. 13, 1992, 92-1 CPD para. 188 at 3. The assessment must be based on sufficient facts so as to establish its reasonableness. Rochester Optical Mfg. Co., B‑292247; B-292247.2, Aug. 6, 2003, 2003 CPD para. 138 at 5.

The principal bases for the agency’s set-aside determination was information obtained from a review of the TSC II procurement history. The CO explains that the agency’s analysis of this information indicated that Delex did not submit a proposal for the predecessor GATP requirement; that in fiscal year 2007, while Delex had expressed interest in the last five delivery order acquisitions, it submitted proposals for only three of the five acquisitions. Moreover, the Navy explains that in a previous delivery-order competition under this ID/IQ contract, where only DPA and Delex submitted proposals, Delex’s proposal was evaluated as unsatisfactory, leaving the agency with only the option of making award to DPA. CO Statement at 7‑10. As a result, the CO explains that she does not think Delex will submit a viable proposal to successfully perform the GATP requirements, which, she explains, have a value five times the value of any delivery order Delex has previously performed. Id. at 8, 9.

Delex argues that the agency’s analysis has a number of flaws. First, with respect to the predecessor GATP delivery order, Delex points out that the order was not reserved for small businesses. As a result, Delex explains that it made a business decision not to compete with the large business ID/IQ contract-holders for this work. Second, with respect to the last five delivery order acquisitions, for which Delex responded to only three, the protester (and the SBA) note that multiple solicitations were issued in a short period of time, so that the company reasonably chose to respond to some, but not all, of the solicitations. Finally, with respect to the delivery order competition 2 years earlier where Delex’s proposal was evaluated as unsatisfactory, Delex contends the Navy’s focus on that one proposal, while ignoring more current and more relevant information, is unfair.

We have examined each of the reasons identified by the Navy for withdrawing the initial set-aside determination, and we conclude that the Navy has not adequately documented the basis for its decision. For example, with respect to the predecessor delivery order for this requirement, we agree with Delex that a small business could reasonably decide not to compete with the large business contract-holders for this work, and that an agency should not rely on the results of an unrestricted competition to determine the likelihood that a small business will participate in a set-aside competition. With respect to the five previous acquisitions, we again agree with Delex. We know of no requirement that a small business participate in every acquisition for which it is eligible to compete, especially when several of these acquisitions are occurring over a short period of time. (Delex Systems, Inc., B-400403,October 8, 2008) (pdf)

LHI is currently providing a dental network under a sole-source contract, which was awarded in 2006 based on the agency’s determination that it was the only responsible source available and that no other services would satisfy the agency’s requirements. See Federal Acquisition Regulation (FAR) sect. 6.302‑1. LHI protested an earlier solicitation for these services on the basis that it was improperly restricted to service disabled veteran-owned small businesses (SDVOSB). In response to that RFP, the agency received only one proposal--which was non-compliant--and it thus canceled the solicitation; we dismissed the protest as academic (B‑310934, Jan. 11, 2008). When the agency reissued the RFP as a small business set-aside, LHI filed this protest challenging the propriety of the set-aside determination. LHI asserts that the set-aside is improper because it believes that there are not two small businesses with demonstrated qualifications or past performance that can provide the services requested at all mobilization site locations.

An acquisition with an anticipated dollar value of more than $100,000 must be set aside for small business concerns if the agency determines that there is a reasonable expectation that offers will be received from two or more responsible small business concerns, and that award will be made at a fair market price. FAR sect. 19.502-2(b). The use of any particular method of assessing the availability of small businesses is not required so long as the agency undertakes reasonable efforts to locate responsible potential competitors. National Linen Serv., B-285458, Aug. 22, 2000, 2000 CPD para. 138 at 2. The decision whether to set aside a procurement may be based on an analysis of factors such as prior procurement history, recommendations of appropriate small business specialists, and market surveys that include responses to sources sought announcements. Id.; SAB Co., B‑283883, Jan. 20, 2000, 2000 CPD para. 58 at 1-2. Generally, our Office regards such a determination as a matter of business judgment, and we will not disturb that determination absent a clear showing that it was unreasonable. National Linen Serv., supra, at 2.

The agency’s set-aside determination is unobjectionable. Prior to issuing the RFP, the contracting officer conducted market research using the small business dynamic search of the Central Contractor Registration database. This research revealed--under North American Industry Classification System (NAICS) code No. 621210 (offices of dentists)--two Section 8(a)-certified firms, two small disadvantaged firms, six SDVOSBs, nine veteran owned small businesses, and three woman-owned small businesses. Contracting Officer’s Statement paras. 6-7. The contracting officer also posted a request for information (RFI) on the Federal Business Opportunities (FedBizOpps) website. Eight small businesses responded to the RFI, including two small businesses, two veteran-owned small firms, and four SDVOSBs. Contracting Officer’s Statement para. 8. Two of the companies, one a veteran-owned small business and the other an SDVOSB, provided information indicating that they were responsible and capable of performing the contract requirements. For example, each had numerous dentists available within the required SRP service radius. The contracting officer’s market research indicated that there were a large number of small and large business vendors providing these services and she also found that pricing for the services would be competitively based. Agency Report, Tab 9, at 4.

We find that the agency’s market research was thorough and reasonably conducted to identify potential small business offerors. Since the research identified multiple small businesses--at least two of which were deemed responsible and capable of performing the requirement--the record reasonably supports the contracting officer’s finding of a reasonable expectation of receiving two or more proposals from small businesses and that award would be made at a fair market price. In short, we conclude that the contracting officer reasonably exercised her business judgment to set the procurement aside for small businesses.  (Logistics Health, Inc., B-400157, August 13, 2008) (pdf)

Commonwealth filed its protest challenging the set-aside decision and designation of the requirements as “supplies” prior to the solicitation closing date of May 30, 2008. Subsequently, the agency received offers from six small business concerns in response to the solicitation.

Under Federal Acquisition Regulation (FAR) sect. 19.502-2(b), a procurement with an anticipated dollar value of more than $100,000, such as the one here, 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. The use of any particular method of assessing the availability of small businesses is not required so long as the agency undertakes reasonable efforts to locate responsible small business competitors. National Linen Serv., B-285458, Aug. 22, 2000, 2000 CPD para. 138 at 2. 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. SAB Co., B-283883, Jan. 20, 2000, 2000 CPD para. 58 at 1-2; PR Newswire, B-279216, Apr. 23, 1998, 98-1 CPD para. 118 at 2. Because a decision whether to set aside a procurement is a matter of business judgment within the contracting officer’s discretion, our review generally is limited to ascertaining whether that official abused his or her discretion. Admiral Towing and Barge Co., B‑291849, B-291849.2, Mar. 6, 2003, 2003 CPD para. 164 at 3-4. We will not question a small business set-aside determination where the record shows that the evidence before the contracting officer was adequate to support the reasonableness of the conclusion that small business competition reasonably could be expected. National Linen Serv., supra, at 2.

Here, the protester questions the accuracy and reliability of the agency’s market research and opines that it is simply not possible for a small business concern meeting the designated size standard to perform the contract from a financial or operational standpoint. Protester’s Comments at 2. The record, however, establishes that the agency did in fact conduct adequate market research to determine whether it was reasonable to set aside the requirement for small business concerns, and, based upon the results of this research, reasonably determined that it could expect small business competition. While the protester argues that the set-aside determination was unreasonable because it does not believe that a small business is capable of performing the work, this argument reflects nothing more than the protester’s disagreement with the agency’s judgment regarding the viability of a set-aside, which does not establish a basis for our Office to question the agency’s determination. IBV, Ltd., B-311244, Feb. 21, 2008, 2008 CPD para. 47 at 2.  (Commonwealth Home Health Care, Inc., B-400163, July 24, 2008) (pdf)

Although agencies need not use any particular methodology in assessing the availability of firms for a set-aside, measures such as prior procurement history, market surveys, and advice from the agency’s small business specialist may all constitute adequate grounds for a contracting officer’s decision to set aside, or not set aside, a procurement. See American Imaging Servs., Inc., B‑246124.2, Feb. 13, 1992, 92-1 CPD para. 188 at 3. The assessment must be based on sufficient evidence to establish its reasonableness. See Rochester Optical Mfg. Co., B-292247, B-292247.2, Aug. 6, 2003, 2003 CPD para. 138 at 5.  As stated above, the agency based its decision here on the information contained largely in the VIP database--the accuracy of which the protester does not challenge--showing that the firm’s total annual revenue--$1‑2 million--was substantially below the estimated value of this contract, and that the value of its largest prior contract was only $475,000; this brought into question the firm’s capacity to perform, since the contract here was valued at $2-3.5 million. Information such as this, concerning firms’ business history, properly may be considered by agencies when making a determination as to whether there are viable potential competitors so as to warrant setting a requirement aside under a small business preference program. See, e.g., MCS Mgmt., Inc., B‑285813, B‑285882, Oct. 11, 2000, 2000 CPD para. 187 (agency reasonably considered annual revenues and size of past contracts when examining whether small businesses were capable of performing contract for a set-aside solicitation). This information led the agency to conclude that “there were no SDVOSB firms, which included FlowSense, with the capabilities and capital to procure the necessary bonding and to perform the work associated with the project.” CO’s Statement at 2. We find nothing unreasonable in this conclusion.  (FlowSense, LLC, B-310904, March 10, 2008) (pdf)

An agency must undertake reasonable efforts to ascertain whether it is likely that it will receive offers from at least two responsible small businesses capable of performing the work in question. Rochester Optical Mfg. Co., B-292247, B-292247.2, Aug. 6, 2003, 2003 CPD para. 138 at 4. No particular method of assessing the availability of capable small businesses is required; rather, the assessment must be based on sufficient facts so as to establish its reasonableness. Id. at 5. USSOCOM’s decision not to set this procurement aside was unobjectionable because the record shows that it reasonably determined that it was not likely to receive offers from two capable small businesses. As an initial matter, the record shows that USSOCOM is highly familiar with the body armor industry. It has been procuring ballistic plates for the last 8 years, during which time it has worked with industry to modify the plate designs to increase their ballistic capabilities. AR, Tab 2, Legal Memorandum, at 2. Further, USSOCOM’s small business advisor--who concurred with the agency’s decision not to set the requirement aside--has been attending trade shows and small business innovation research events for the last 10 years. USSOCOM Letter to GAO, Oct. 9, 2007, Declaration of Karen L. Pera, at 1. The principal basis for the agency’s determination was the information obtained through the industry day meetings with prospective offerors prior to the release of the solicitation. As noted, the agency met with five small businesses--including all three of the small business offerors under the first solicitation‑-in one-on-one sessions and specifically discussed with them their ability to meet the current requirement. In this regard, the agency asserts, and the protester does not dispute, that the required ballistic plates are “completely distinct from any other standard product in the marketplace,” USSOCOM Letter to GAO, Oct. 9, 2007, Contracting Officer’s Statement, at 1, and are significantly more difficult to produce than other body armor plates--including the “small arms protective inserts” and “enhanced small arms protective inserts” manufactured by the protester and the other small businesses that attended the industry day conference--which do not meet USSOCOM standards for weight, thickness, and ballistic requirements. USSOCOM Letter to GAO, Oct. 9, 2007, Declaration of Richard W. Elder, at 1-4. The agency asserts--and TPG does not dispute--that none of the small businesses, including the protester and the firm the protester identified as a second likely competitor for the requirement, provided any information during the industry day conference showing that they could or intended to try to meet the government’s requirements for this procurement. TPG now asserts that it is has the desire and capability to supply the ballistic plates. However, notwithstanding its current stated intent, again, TPG does not dispute that it failed to furnish the agency any information during the industry day meetings that demonstrated its intent and capability to compete. Since there likewise is nothing in the record refuting the agency’s determination that no other small businesses were viable prospective offerors for the requirement, we find the agency reasonably determined that it would not receive two offers from capable small businesses. See Belleville Shoe Mfg. Co. et al., B‑287237 et al., May 17, 2001, 2001 CPD para. 87 (set-aside not required where record supports finding that firm had never produced boots of the type and quantity required under the solicitation); MCS Mgmt., Inc., B‑285813, B‑285882, Oct. 11, 2000, 2000 CPD para. 187 (set-aside not required where there is no indication that small business concerns could perform food service contracts of the scope and complexity required under the solicitation).  (The Protective Group, Inc., B-310018, November 13, 2007) (pdf)

The protester argues that the market research conducted by the contracting officer here was inadequate to support her conclusion that offers from at least two responsible small business concerns could reasonably be expected. ViroMed maintains in this regard that at a minimum, adequate market research required the contracting officer to determine whether each small business that responded to the sources sought notice had (1) appropriately equipped facilities, (2) an adequate number of personnel, (3) the capability to process up to 8,000 HIV tests per day, and (4) the ability to secure the required IT capability. The protester contends that rather than verifying the accuracy of sources’ claims regarding their capabilities, the contracting officer simply accepted their self-serving assertions, which was insufficient.  While acknowledging that agencies are not required to make determinations regarding the responsibility of prospective sources in deciding whether to set aside an acquisition, Protester’s Comments, Nov. 13, 2006, at 3, the protester in essence argues that the agency should have made determinations tantamount to affirmative determinations of responsibility with regard to the prospective sources here. In making set-aside decisions, agencies need not make either actual determinations of responsibility or decisions tantamount to determinations of responsibility, however; rather, they need only make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract. SAB Co., supra, at 3-4; PR Newswire, supra, at 3. 
The market research performed by the contracting officer here clearly permitted her to make an informed business judgment that offers from multiple small businesses with the capability to perform the required volume of tests and to secure the required IT capability could reasonably be expected.[2] Regarding the protester’s assertion that the contracting officer should not have accepted the “self-serving” claims of prospective offerors regarding their capabilities without verification, in the absence of evidence of misrepresentation, we do not think that such a level of scrutiny was required. (ViroMed Laboratories, B-298931, December 20, 2006)  (pdf)

We find that Encompass’s arguments do not demonstrate that VA’s judgment that the agency would receive two or more offers from responsible small business concerns at a fair market price was unreasonable. That is, even accepting the protester’s argument that bulk fabric can only be obtained from large businesses, a small business concern would not necessarily be unable to satisfy the “nonmanufacturer” rule simply because the small business firm obtains bulk fabric from a large business. This is so because VA is not purchasing bulk fabric, but finished goods, which require the transformation of the bulk fabric. As noted above, SBA’s regulations provide that the manufacturer of an end item “is the concern which, with its own facilities, performs the primary activities in transforming inorganic or organic substances, including the assembly of parts and components, into the end item being acquired.” 13 C.F.R. sect. 121.406(b)(2). Under this rule, a firm that transforms the bulk fabric into end items such as sheets, pillow cases or blankets could qualify as a manufacturer of the end items despite the origin of the bulk fabric. Accordingly, we find that Encompass’s argument that there are no small business manufacturers of the bulk fabric does not show that the agency was unreasonable in concluding that it would obtain two or more offers from small business manufacturers of the sheets, pillow cases and blankets. (Encompass Group LLC, B-296602; B-296617, August 10, 2005) (pdf)

Moog does not dispute that AMCOM has previously procured this requirement as a small business set-aside. Rather, Moog argues that AMCOM erroneously failed to acquire these services from approved sources. As noted above, we find that the RFP does not require source approval to perform these services. Moog also argues that the previous performance of these services by the small business contractor has been deficient. AMCOM disputes Moog's allegations and states that the small business has satisfactorily performed "without having any safety of flight related problems or other significant quality issues." See Contracting Officer's Statement at 2; AR, Tab 16, Letter from AMCOM to Moog (Aug. 19, 2003) at 4. Although Moog disagrees with the agency's assessment that the small business satisfactorily performed the overhaul services, its disagreement provides us with no basis to conclude that no responsible small business could perform these services. We find that AMCOM reasonably determined that it could expect to receive offers from at least two responsible small business concerns at a fair market price, and therefore the solicitation was appropriately set aside for exclusive small business participation. (Moog Inc., B-294600, November 12, 2004) (pdf)

In our view, the record does not show that the contracting officer reasonably considered whether the procurement could be set aside for exclusive small business participation. On the contrary, the record indicates that the contracting officer failed to take into account known information indicating the interest of capable small business concerns in this procurement. As discussed above, the contracting officer reports that prior to determining that there was no reasonable expectation of receiving offers from at least two responsible small business concerns, contracting personnel contacted five contractors in the GSA Advantage database, including three small business concerns and two large businesses, and also a nonprofit organization; according to the agency, all responded that they could not perform the agencys requirement. However, the agency has pointed to nothing in the record that indicates that the reported inability of the selected entities to undertake the contemplated contract was related to their size (rather than to other considerations, such as, for example, other commitments). As part of our development of the record, we requested and received comments from SBA, who contends that the agencys market research was inadequate. SBA notes that the contracting officer failed to investigate other recommended, readily available sources of information concerning the availability of responsible small business concerns. For example, FAR 13.102, applicable to simplified acquisitions such as this one, provides that [c]ontracting officers should use the Central Contractor Registration [CCR] database . . . as their primary sources of vendor information. In this regards, SBA notes that small business concerns are encouraged to register in the CCR. The contracting officer, however, did not consult the CCR. Had she done so, using the North American Industry Classification System (NAICS) code that she views as appropriate, NAICS code 54161, Management Consulting Services, she would have discovered a large pool of small business concerns from which to select firms for further evaluation. [3] SBA also points to the agencys failure to search SBAs PRO-NET, which is an online database of information on more than 195,000 small, disadvantaged, Section 8(a), Historically Underutilized Business Zone (HUBZone), and women-owned businesses. (SBA recently merged the CCR and PRO-NET databases into the Dynamic Small Business Search database.) In addition, FAR 19.202-2 generally requires contracting officers, before issuing solicitations, to make every reasonable effort to find additional small business concerns, which should include contacting the agency SBA procurement center representative, or if there is none, the SBA. Likewise, FAR 19.202 requires contracting officers to consider recommendations of the agency Director of Small and Disadvantaged Business Utilization, or the Directors designee, as to whether a particular acquisition should be set aside for small businesses, while FAR 19.501(e) states that the contracting officer shall review acquisitions to determine if they can be set aside for small business, giving consideration to the recommendations of agency personnel having cognizance of the agencys small business programs. Again, however, the contracting officer failed to utilize these available sources of information concerning potential small business participation. Furthermore, the record establishes that the contracting officer in fact was on notice, prior to issuance of the solicitation on June 18, of substantial small business interest in this procurement, including interest from small business concerns that the agency itself ultimately determined to be capable of performing the requirement. In this regard, in response to the presolicitation notice, six small business concerns requested a copy of the solicitation, and two included evidence of their capabilities. Further, the agency ultimately found two of the small business concerns (including one that had submitted prior to issuance of the solicitation a qualifications statement with its request for a copy of the solicitation) to be capable and qualified and requested each to submit a proposal. The contracting officer, however, apparently did not evaluate the capabilities of any of the small businesses which had expressed interest in the solicitation to determine, before issuing the solicitation, whether her previous determination that there was no reasonable expectation of receiving offers from at least two responsible small business concerns was still supportable. The agency, instead, simply issued the solicitation on an unrestricted basis. We agree with SBA that the contracting officer should have assessed the capability of the small business concerns that had responded to the presolicitation notice before issuing the solicitation on an unrestricted basis. See Safety Storage, Inc. , B-280851, Oct. 29, 1998, 98-2 CPD 102 at 3 (contracting officer failed to survey firms that had responded to Commerce Business Daily announcements to assess their capability to perform the contract); see also ACCU-Lab Medical Testing, B-270259, Feb. 20, 1996, 96-1 CPD 106 at 3 (contracting officer failed to consider small business concerns that showed interest when requirement was still set-aside). (Information Ventures, Inc., B-294267, October 8, 2004)  (pdf)

This case involves the unusual situation where, consistent with the terms of the RFP, the agency’s decision to make this solicitation a 100-percent set-aside for small businesses was made after receipt of proposals that included several from small businesses. Under such circumstances, we do not think that the agency, in determining to set aside this procurement, was required to determine whether the initial proposals as submitted were technically compliant or acceptably priced. See id.; cf. York Int’l Corp., B-244748, Sept. 30, 1991, 91‑2 CPD ¶ 282 at 7 (although agency’s determination to issue a solicitation as a small business set-aside lacked a reasonable basis, its receipt of offers from small businesses justified the set-aside). Rather, we think that the agency need only determine, based upon the initial proposals received, that there is a reasonable expectation that it will ultimately receive offers from at least two small business concerns that are capable of performing the contract and that award will be made at a fair market price. See FAR § 19.502-2; American Med. Response of Connecticut, Inc., supra. (Admiral Towing and Barge Company, B-291849; B-291849.2, March 6, 2003) (pdf)

As noted above, the contracting officer performed three Pro-Net searches, at least one of which was performed in consultation with the SBA, and from these searches could not identify two or more small businesses with bonding capacity that could perform design, fabrication, and installation work. Based on these results, and with the concurrence of the SBA, the contracting officer determined that there was no reasonable expectation that the BLM would receive two or more offers from small businesses in response to the RFP. We find this determination to be reasonable. We accord substantial weight to the fact that the contracting officer's determination was made in concurrence with the SBA, was subsequently reviewed by the SBA's local office, and was again reviewed by the SBA during this protest and found not to be unreasonable. Quality Hotel, supra, at 4; CardioMetrix, B-260747, July 18, 1995, 95-2 CPD ¶ 28 at 3.  (American Artisan Productions, Inc., B-292380, July 30, 2003)  (pdf)

The VA first asserts that the prices proposed by Rochester and Barnett and Ramel under the prior small business set-aside procurement were not low. TC at 101-03. However, as stated above, FAR § 19.502-2(b) requires that in determining whether to procure requirements under a small business set‑aside, an agency must have a reasonable expectation of receiving “fair market price” offers, not “low” prices, from at least two responsible small business concerns. Although the prices proposed by Rochester and Barnett and Ramel under the prior procurement were not low (among the four offers received),[6] the fact that these two small business concerns received ID/IQ contracts under a small business set‑aside reasonably demonstrates that the agency believed that their offers ultimately contained fair and reasonable prices. FAR § 15.402(a). Under these circumstances, the failure of these two small business concerns to submit the lowest prices under the prior procurement does not establish a reasonable basis for the VA to conclude that these two firms could not submit fair market price offers for the protested requirement.  The VA next argues that in determining not to procure its current VISN 9 requirement under a small business set-aside, it believed, based on the prior small business set-aside procurement, that it would not receive offers from at least two “responsible” small business concerns. In other words, the VA was not concerned with the quantum of known competition from the prior procurement--two small businesses, Rochester and Barnett and Ramel; rather, the VA believed that these two firms were not responsible contractors. In this regard, the VA states that under the prior procurement, Rochester received a cure notice for not submitting qualifications statements for proposed personnel and Barnett and Ramel subcontracted with a large business. (Under their respective ID/IQ contracts, Rochester received minimal orders, while Barnett and Ramel received no orders. TC at 347.) The record shows, however, that Rochester complied with the cure notice and its contract was not terminated by the VA. TC at 325. In addition, the record shows that Barnett and Ramel's subcontract relationship with a large business was acceptable so long as Barnett and Ramel, as the small business prime contractor, complied with the 50 percent limitation on subcontracting clause at FAR § 52.219-14, which was included in the solicitation. None of this establishes on its face that these two firms were not responsible contractors and we conclude that the VA's position, as stated above, does not provide a reasonable basis for it to decide not to procure its current VISN 9 requirement under a small business set‑aside. Finally, the record shows that the contracting officer's market research was inadequate and fails to support the determination not to set aside the current VISN 9 requirement for small business concerns. The first problem with the contracting officer's Pro-Net search is that she unreasonably limited her search to one state, Tennessee, as shown above, when VISN 9 also covers the states of Kentucky and West Virginia. When asked at the hearing conducted by our Office why she did not do the Pro-Net search for the three states covered in VISN 9 (or even nationwide), the contracting officer responded, “actually, when I did the Pro-Net search, I thought that block [on the Internet page] was 'where are you at' and I'm at Tennessee, so that's what I used and I came up with nothing.” TC at 491. In other words, the contracting officer unreasonably limited her Pro-Net search to the state of Tennessee because that is where she was located, thus ignoring the possibility that there could be small business concerns in at least the other two states, Kentucky and West Virginia, that might be interested in competing for the current VISN 9 requirement. Another problem with the contracting officer's Pro-Net search is that in inserting an average annual gross revenue amount corresponding to NAICS code 446130, the contracting officer inserted “$6.0,” not “$6,000,000.00.” During the hearing, the contracting officer could not point to anything that would suggest that the monetary figure inserted by her translated to “millions of dollars,” as opposed to just “dollars.” TC at 497-535, 547. As a result, it should have come as no surprise that no small business concern was found to have had an average annual gross revenue amount not exceeding “$6.00.”[8] At the hearing, our Office told the VA that we had performed a Pro‑Net search on a nationwide basis using “$6000000” and NAICS code 446130, without a “manufacturing, service” restriction; when pointed out to the VA that our search yielded 65 firms matching this criteria, the VA had no response. TC at 497. On this record, where the contracting officer's market research was geographically limited for no legitimate reason and where she used inaccurate information as the basis for her research, we conclude that the contracting officer's market research was materially deficient and could not reasonably be relied upon in determining not to conduct the current procurement as a small business set-aside.  (Rochester Optical Manufacturing Company, B-292247; B-292247.2, August 6, 2003)  (pdf)

As noted in our prior decision, it was the Army's decision in May 2002 to transfer this work to LOGJAMSS, the scope of which was broad and vague and did not specifically contemplate this work, that violated FAR § 19.502-2(b). That regulation requires the agency to consider setting aside this work for exclusive small business competition. The Army apparently now concedes that under FAR § 19.502-2(b) these services should be set aside for exclusive small business competition. As discussed above, any such competition must be a full and open competition among the eligible small businesses; there is no legal authority in such circumstances to limit this competition to certain designated small businesses. The Fort Polk motor pool work was not called out in the LOGJAMSS solicitation, and the fact that there was full and open competition for the LOGJAMSS contracts is therefore irrelevant to the application of the rule of two to the Fort Polk requirement.  [Request for Modification of Recommendation in Decision LBM, Inc., B-290682, September 18, 2002.]  (Department of the Army--Request for Modification of Recommendation, B-290682.2, January 9, 2003)

Here, there is no evidence in the record that the agency considered whether these services should be set aside exclusively for small business participation. Moreover, the Army does not dispute that there are at least two responsible small business concerns capable of competing for the Fort Polk motor pool services, nor does it contend that there was not a reasonable expectation of receiving fair market price offers. In fact, the record reflects that there are at least two responsible small business concerns capable of performing, that is, LBM and the small business contractor that most recently performed the services under a set-aside contract.  (LBM, Inc., B-290682, September 18, 2002)  (pdf)

While the use of any particular method of assessing the availability of small businesses is not required, and measures such as prior procurement history, market surveys and advice from the agency's small business specialist and technical personnel may all constitute adequate grounds for a contracting officer's decision not to set aside a procurement, American Imaging Servs., Inc., B-246124.2, Feb. 13, 1992, 92-1 CPD para. 188 at 3, the assessment must be based on sufficient facts so as to establish its reasonableness. McSwain & Assocs., Inc.; Shel-Ken Properties, Inc.; and Elaine Dunn Realty, B-271071 et al., May 20, 1996, 96-1 CPD para. 255 at 2-3.  (MCS Management, Inc., B-285813; B-285882, October 11, 2000)

In structuring the multiple contract alternative, DSCP determined to compete scenarios 1 and 2 using full and open competition, and to set aside scenario 3 for small business concerns. Under the single contract alternative, a contract will be awarded on the basis of full and open competition. Id. at 5. The protesters raise several arguments challenging the agency's determination to set aside only one of the three scenarios for small business concerns and, alternatively, its failure to partially set aside scenarios for which a total set-aside was not appropriate. We find that the agency reasonably determined that it was appropriate to totally set aside only one scenario, but that the agency improperly failed to consider whether partial set-asides for the remaining scenarios were required.  (Belleville Shoe Manufacturing Company; Altama Delta Corporation;, B-287237; B-287237.2; B-287237.3, May 17, 2001)

Specifically, while we recognize that this challenge focuses on, and is triggered by, the decision to use a task order under GSA's ID/IQ contract to procure travel services at Travis AFB, this complaint, in essence, raises the question of whether the solicitation for the underlying ID/IQ contracts properly included Travis despite the claimed independent requirement to reserve the Travis effort for small businesses. Thus, as discussed in greater detail below, we conclude that the small business protesters are mounting a challenge to the terms of the underlying solicitation, and that the limitation on our bid protest jurisdiction in 10 U.S.C. sect. 2304c(d) therefore does not apply to this protest. Since we are charged by statute with reviewing protests alleging that a solicitation does not comply with applicable procurement statutes and regulations, 31 U.S.C. sect.sect. 3552, 3554(b)(1), we conclude that this portion of the protest is properly within our bid protest jurisdiction. Ocuto Blacktop & Paving Co., Inc., B-284165, Mar. 1, 2000, 2000 CPD para. 32 at 4-5.  (N&N Travel & Tours, Inc.; BCM Travel & Tours; Manassas Travel, Inc.;, B-285164.2; B-285164.3, August 31, 2000)

Contrary to the central thrust of the protester's arguments, in making set-aside decisions, agencies need not make determinations tantamount to affirmative determinations of responsibility; rather, they need only make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract. American Medical Response of Conn., Inc., B-278457, Jan. 30, 1998, 98-1 CPD para. 44 at 2-3; Anchor Continental, Inc., B-220446, Feb. 6, 1986, 86-1 CPD para. 137 at 3-4; Fermont Div., Dynamics Corp. of Am.; Onan Corp., B-195431, June 23, 1980, 80-1 CPD para. 438 at 8-9. The historical information available to the agency here was sufficient to permit it to make such an informed judgment. The set-aside therefore was unobjectionable.  (SAB Company, B-283883, January 20, 2000)

The record shows that an important factor in the agency's determination to issue the RFP on an unrestricted basis was the contracting officer's belief, gained through communications with the subscribers, that only the two large businesses "currently secure . . . front-end sales and movement data from the civilian grocery chains on a nationwide basis." Contracting Officer's Statement of Fact at 1-2. As MMI points out, however, the RFP does not require commercial grocery data on a nationwide basis; rather, the required database is more limited in scope, since only "comparable sales/movement data from commercial grocery stores within the same geographical areas" as the DeCA commissaries is required. RFP SOW at 4. The RFP also did not require any firm to have the necessary databases in place prior to award. MMI, in response to the agency report, identifies several firms, including at least two other small business concerns, which operate in this industry and have access to, or could obtain, the requisite data; DeCA has not specifically challenged the capability of the firms identified by MMI. Since the RFP does not require a potential offeror to have a subscription for the DeCA commissary data or the comparable commercial data in place at the time of proposal submission, a market survey limited to the three current subscribers was insufficient to reasonably assess potential industry interest and capability to meet the agency's needs, particularly regarding small businesses.  (Marketing & Management Information, Inc., B-283399.2; B-283399.3, November 30, 1999)

The set-aside determination was proper. Because the acquisition here was of the same size and type as the successful set-asides in the southeast, and there was no apparent reason to expect a different outcome merely due to geography, we think the contracting officer reasonably relied on his prior experience in initially deciding to set this procurement aside.  (Stewart Title Company of Illinois, B-283291, October 18, 1999)  

Further, as already explained, there is no evidence in the record that the agency made any attempt to contact any of the small businesses that had responded to the initial DSC-OH CBD announcement, or surveyed the three small business firms that responded to the subsequent DISC-PA CBD announcement. In addition, there is no evidence in the record that the agency made any attempt to coordinate its determination with the Small Business Administration or with the agency's Small Business Utilization Specialist. See FAR sec. 19.401, 19.501(c). In short, we conclude that there is no evidence in the record that the agency made any reasonable effort to adequately survey the market place in order to determine whether there are any small businesses capable of performing the contract.  (Safety Storage, Inc., B-280851, October 29, 1998)

The Rule of Two requires the contracting officer to “set aside any acquisition over $150,000 for small business participation, when there is a reasonable expectation that: (1) [o]ffers will be obtained from at least two responsible small business concerns . . . ; and (2) [a]ward will be made at fair market prices.” 48 C.F.R. § 19.502-2(b). The contracting officer’s decision to set aside a solicitation “is a matter of business judgment within the contracting officer’s discretion and, as such, must be upheld unless the [c]ourt finds the decision to be ‘arbitrary, capricious, an abuse of discretion[,] or otherwise not in accordance with law.’” Benchmade Knife Co. v. United States, 79 Fed. Cl. 731, 738 (2007) (quoting 5 U.S.C. § 706(2)(A)). This standard “requires only that the agency’s decision be supported by a rational basis.” Mgmt. & Training Corp. v. United States, 115 Fed. Cl. 26, 44 (2014) (citing 28 U.S.C. § 1491(b)(4)). In addition, although “the assessment [of the availability of small businesses] must be based on sufficient facts so as to establish its reasonableness, no particular method of assessing the availability of small businesses is required.” Id. (internal quotation marks and citations omitted); see also Res-Care, Inc., 735 F.3d at 1390–91 (holding that there was no abuse of discretion in the contracting officer’s thorough analysis of materials submitted by potential bidders in response to a “Request for Information”); Adams & Assocs., Inc. v. United States, 109 Fed. Cl. 340, 356 (Fed. Cl. 2013), aff’d, 741 F.3d 102 (Fed. Cir. 2014) (“Adams & Assocs. I”) (“While the Rule of Two analysis was not extensive, an extensive analysis was not required.”).

The Rule of Two also does not require the contracting officer to find that any two specific small businesses are responsible; the contracting officer only must “reasonably expect” that two responsible small businesses will submit offers. See Adams & Assocs. II, 741 F.3d at 111 (“a setaside determination requires only that the contracting officer have a reasonable expectation that likely small business offerors will survive a future responsibility determination”); see also McKing Consulting Corp. v. United States, 78 Fed. Cl. 715, 726 (2007) (“[T]he actual merits of the individual bids are not dispositive on the issue of the reasonableness of the contracting officer's expectations.”); Greenleaf Constr. Co. v. United States, 67 Fed. Cl. 350, 361 (2005) (“The logic behind the Rule [of Two] is obvious—it may not be possible for a [contracting officer] to gauge bidder responsibility and price fairness before a solicitation is even issued.”).  

In this case, the Administrative Record evidences that the Army evaluated responses to the June 6, 2016 RFI “to identify . . . sources with the technical capability and necessary resources to provide programmatic support services for the USASAC, and FMS Enterprise Security Assistance (SA)/FMS.” AR 613. The twenty-seven responses received provided the USASAC with information regarding relevant performance experience, current resources and personnel, administrative capabilities, percentage of the contract that the small business could perform with in-house resources, past experience with different funding schemes, ability to transition contracts within thirty days, management of sub-contractors, use of an approved accounting system, and experience performing work outside of the United States. AR 118–540. Six USASAC officials independently analyzed the RFI responses before reaching a consensus. AR 605. Next, the USASAC determined that of the twenty-three “small businesses” that responded, eight “demonstrat[ed] all required services with potential to successfully provide [the] requirements [of the November 1, 2016 Solicitation].” AR 6055, 613. The USASAC published the procedure and analysis undertaken in the August 9, 2016 Market Research Report. AR 604–13. The Contracting Officer reviewed the USASAC’s August 9, 2016 Market Research Report and found that it “indicate[d] there [was] a reasonable expectation offers [would] be obtained from at least two responsible small business concerns, and award [would] be made at fair market prices based on the anticipated number of capable small business[es] . . . to be participating in the eventual competition.” AR 794, 1402. Because the Contracting Officer determined that the Rule of Two was met, he was obligated to set aside the November 1, 2016 Solicitation for small businesses, pursuant to 48 C.F.R. § 19.502-2(b).

Sigmatech advances several arguments to support the assertion that the Contracting Officer’s small business set-aside decision was arbitrary and capricious, all of which focus on whether it was reasonable for the Contracting Officer to determine that the eight “small business” potential bidders were capable of performing the requirements of the November 1, 2016 Solicitation. 3/24/17 Pl. Mot. But, the FAR does not require the Contracting Officer to determine “capability” when making a Rule of Two determination. The Contracting Officer is required only to have “a reasonable expectation that: (1) [o]ffers will be obtained from at least two responsible small business concerns . . . ; and (2) [a]ward will be made at fair market prices.” 48 C.F.R. § 19.502-2(b) (emphasis added).

Sigmatech, however, conflates a Rule of Two set-aside determination with a responsibility determination made under FAR 9.104-1. The Rule of Two “determines whether there is a reasonable expectation that at least two responsible small businesses will make an offer at fair market prices, while the latter [i.e., a responsibility determination] determines whether an individual contractor is responsible in the context of awarding a contract.” See Adams & Assocs. II, 741 F.3d at 111. Therefore, at this stage in the procurement process, i.e., pre-award, the Contracting Officer is not required to determine that any two particular small businesses are responsible; the Contracting Officer need only reasonably expect that two responsible small businesses will submit offers. See Adams & Assocs. II, 741 F.3d at 111; see also McKing Consulting Corp., 78 Fed. Cl. at 726 (“[T]he actual merits of the individual bids are not dispositive on the issue of the reasonableness of the contracting officer's expectations.”); Greenleaf Constr. Co., 67 Fed. Cl. at 361 (“The logic behind the Rule [of Two] is obvious—it may not be possible for a [contracting officer] to gauge bidder responsibility and price fairness before a solicitation is even issued.”). For this reason, the United States Court of Federal Claims has determined that “the fact that six small businesses responding to the RFI, standing alone, could have been sufficient to form a reasonable expectation of offers from two responsible small businesses.” Mgmt. & Training Corp., 118 Fed. Cl. 155, 170 (Fed. Cl. 2013) (citing McKing Consulting Corp., 78 Fed. Cl. at 725 (“If four companies expressed interest in the project before the actual Solicitation was even issued, the contracting officer certainly could have reasonably expected that at least two of those companies would submit responsive bids.”)).

The court’s decisions also have emphasized that the “threshold for meeting the criteria of the Rule of Two is purposely low[.]” Adams & Assocs. I, 109 Fed. Cl. at 357, aff’d, 741 F.3d 102 (Fed. Cir. 2014). This is so, because the Rule of Two is part of a larger FAR framework established to benefit small businesses:

It is the policy of the Government to provide maximum practicable opportunities in its acquisitions to small business[.]

48 C.F.R. § 19.201(a).

One such opportunity is the small-business set-aside, the “purpose” of which “is to award certain acquisitions exclusively to small business concerns,” id. § 19.501(a), and a set-aside “ha[s] priority over acquisitions using full and open competition.” Id. § 19.203(e). The FAR framework also provides the Contracting Officer with flexibility to withdraw a set-aside where no responsible offers are made or where proposals are not made at a fair market price.

Specifically, after the solicitation, when the contracting officer reviews proposals, he will conduct a responsibility determination pursuant to FAR part 9.104–1, which takes into account all of the bidder's “existing commercial and governmental business commitments,” past performance, capacity, and capability. If there are no acceptable offers from responsible small businesses in response to a set-aside, then FAR part 19.502-2(a) states that “the set-aside shall be withdrawn and . . . be resolicited on an unrestricted basis.” . . . Additionally, if the proposals do not initially reflect a fair market price, then a fair price may be negotiated pursuant to FAR part 15, and “[e]xcept as authorized by law, a contract may not be awarded as a result of a small business set-aside if the cost to the awarding agency exceeds the fair market price.”

Adams & Assocs. I, 109 Fed. Cl. at 357, aff’d, 741 F.3d 102 (Fed. Cir. 2014) (quoting 48 C.F.R. § 19.501(g)).

For these reasons, the court has determined that the Contracting Officer’s August 10, 2016 decision to set aside the November 1, 2016 Solicitation for small businesses was neither arbitrary nor capricious, because the “small business” potential bidder information gathered through the June 6, 2016 RFI and the USASAC’s August 9, 2016 Market Research Report provided the Contracting Officer with sufficient facts to form “a reasonable expectation that: (1) [o]ffers will be obtained from at least two responsible small business concerns . . . ; and (2) [a]ward will be made at fair market prices.” 48 C.F.R. § 19.502-2(b).  (Sigmatech, Inc. v. U. S., No. 17-183 C Filed: January 5, 2018)

II. Whether the Contracting Officer’s Decision Not to Set this Procurement Aside for Small Businesses was Arbitrary or Capricious

Plaintiff argues that the CO failed to conduct the necessary Rule of Two analysis. The Rule of Two provides that the CO shall set aside acquisitions over $150,000 when he or she has a reasonable expectation that “offers will be obtained from at least two responsible small business concerns” and at “fair market prices.” FAR 19.502-2(b). Plaintiff contends that “DLA’s failure to determine the government’s actual needs, and identify those items in the Solicitation, makes it impossible for the Agency to conduct the mandated ‘Rule of Two’ analysis because the Agency cannot determine whether small businesses offer products that will satisfy the government’s needs.” Pl.’s Mot. J. on the AR 21. Plaintiff’s argument about the Rule of Two is linked to its first argument; namely, that the agency must specify its actual and legitimate needs before it issues a solicitation or conducts market research.

Plaintiff’s argument is not really that the CO completely failed to conduct a Rule of Two analysis, which would be contrary to the evidence in the record, but that the CO’s analysis was fundamentally flawed because she was not asking the right questions. The CO analyzed whether there were two or more small businesses capable of providing DLA with the range of tents client customers might need and concluded that “both large and small business are crucial to satisfy the requirements and there are not two or more small businesses within this market capable of providing the full array of Shelters and associated components desired by the customers.” AR 454. According to plaintiff, if the solicitation had actually identified needs on a more particularized basis, and if the CO then had asked whether two small businesses could meet that specific need, then there might have been two or more small businesses available to meet that need at fair market prices.

Plaintiff’s real disagreement is thus once again with the structure of the solicitation, which we have already determined was in accordance with law. Requiring the agency to determine particularized needs at the umbrella contract level would be tantamount to using a totally different approach to the procurement. Assuming that the use of the umbrella concept was proper, then the question merely becomes whether what the CO did was reasonable. We do not sit in the place of the CO and conduct the Rule of Two analysis de novo.

In deciding whether the requirement of FAR 19.502-2(b) is triggered, the CO may consider “prior procurement history, the nature of the contract, market surveys, and/or advice of the agency’s small business specialist.” MCS Mgmt., Inc. v. United States, 48 Fed. Cl. 506, 511 (2000). In this case, defendant argues that the CO undertook reasonable efforts to determine if the Rule of Two was satisfied because she called eleven companies to gauge their interest, compared the most popular tents under the TLSP to those offered by small businesses that had submitted proposals, and sought equivalent products amongst small businesses. While the CO found that small businesses offered some of the products that would likely be obtained through the Emall, the CO reasonably concluded that soft shelter systems provided by both large and small businesses were necessary to achieve the full range of products required by the government. This is reflected in the fact that under the previous procurement, the TLSP, the small business manufacturer rule had to be suspended so that small businesses could offer products manufactured by large businesses. It was logical, moreover, to test the agency’s initial hypothesis (that the umbrella contract could not be limited to small businesses) by isolating a few items from past procurements that were in high demand. If those were not offered by small businesses, there was no point undertaking the exercise more extensively.

We agree with defendant that the CO employed reasonable efforts in her analysis and came to a reasonable conclusion, which we are not in a position to second guess. We note that even the SBA consented to the CO’s decision not to set this solicitation aside. AR 455. Finally, DLA committed to setting aside delivery orders that could be filled by small businesses pursuant to FAR 16.505(b)(2)(i)(F). We conclude that the “contracting agency provided a coherent and reasonable explanation of its exercise of discretion.” Impresa, 238 F.3d at 1333 (citation and quotation omitted).  (SEK Solutions, Inc. v. U. S., No. 14-243C, July 11, 2014)  (pdf)

2. Small Business Set Asides Are Not Foreclosed Under the WIA

The court begins by addressing plaintiff’s primary contention in this bid protest—that the Workforce Investment Act [of 1998] expressly prohibits small business set-asides in JCC procurements. To review, the relevant portion of WIA, codified at 29 U.S.C. § 2887(a)(2)(A), provides:

Except as provided in subsections (a) through (c) of section 3304 of Title 41, the Secretary [of Labor] shall select on a competitive basis an entity to operate a Job Corps center and entities to provide activities described in this subchapter to the Job Corps center.

Id. (emphasis added). This provision of the WIA includes a direct statutory reference to CICA, which requires “full and open competition” in federal procurement “except as provided in sections 3303, 3304(a), and 3305 of this title and except in the case of procurement procedures otherwise expressly authorized” in another source of law. 41 U.S.C. § 3301(a). Undisputedly, a small business set-aside does not fall within any of the exceptions codified at 41 U.S.C § 3304(a)-(c), which pertain to instances in which contracts are awarded without any competition at all, such as sole source contracts.9 However, the parties disagree as to whether the use of a small business set-aside is consistent with the “competitive basis” requirement enumerated in § 2887(a)(2)(A).

Plaintiff’s argument can be summarized as follows. First, plaintiff points out that § 2887(a)(2)(A) of the WIA requires that JCC operators be selected on a “competitive basis.” Pl.’s Cross-Mot. at 23-25. Second, plaintiff argues that the phrase “competitive basis” is synonymous with the principle of “full and open competition,” which is mandated by CICA in 41 U.S.C. § 3301(a). According to plaintiff, it is appropriate to refer to CICA in interpreting “competitive basis” because the “competitive basis” provision of WIA includes an explicit statutory reference to CICA—namely the reference to § 3304(a)-(c). Id. Third, plaintiff points out that the exceptions to the competitive basis requirement found in § 2887(a)(2)(A) do not include small business set-asides, but encompass only instances where sole source procurements are required or situations of “unusual or compelling urgency.” Id. (discussing 41 U.S.C. § 3304(a)-(c)). Finally, plaintiff concludes by arguing, on the basis of the negative implication canon (expressio unius est exclusio alterius), that exceptions to CICA’s “full and open competition” requirement other than § 3304(a)-(c) are precluded. The CICA exception for set-asides—codified at § 3303—is not expressly included, therefore it must be excluded. Id.

The statutory question raised by plaintiff has recently been resolved by the Federal Circuit. See Res-Care, Inc. v. United States, 735 F.3d 1384 (2013). In that case, Res-Care, Inc. filed a bid protest challenging the DOL’s decision to set aside competition to operate the Blue Ridge Job Corps Center. Like the plaintiff in this case, Res-Care, the incumbent operator of Blue Ridge, argued that “competitive basis” should be interpreted to mean competition among all possible competitors unless one of the provisions in §§ 3304(a)-(c) apply. As the Federal Circuit held, the critical premise in plaintiff’s syllogism—that “competitive basis” means competition among all possible competitors—is contrary to the “plain language” of the WIA. Id. at 1389. The plain, ordinary meaning of “competition” is “rivalry between two or more equally matched individuals or forces . . .” Res-Care, 735 F.3d at 1388; see also Adams & Associates, Inc. v. United States, 2013-5077, 2014 WL 274507, at *4 (Fed. Cir. Jan. 27, 2014) (reaching the same conclusion as Res-Care).

Moreover, as the Federal Circuit pointed out, plaintiff’s attempt to equate “competitive basis” with “free and open competition” is misguided. “Congress did not borrow the ‘full and open competition’ phrase from CICA” but instead required that competition occur “on a competitive basis.” Res-Care, 735 F.3d at 1389. The court reasoned that, “we must presume that Congress understood the difference between expressions of a particularized form of competition, i.e., ‘full and open,’ versus the broader notion represented by ‘competitive basis.’ Had Congress intended JCC contractors to be selected by ‘full and open competition,’ it knew how to use those words and could have done so.” Id.

Finally, the Federal Circuit’s view of “competitive basis” is consistent with the language of CICA. In particular, the phrase “competitive basis” is very similar to the phrase “competitive procedures” that is used in the CICA exception allowing small business set-asides, 41 U.S.C. § 3303(b). Since § 3303(b) requires agencies conducting set-asides to use “competitive procedures,” it is clear that set-asides are, in a sense, “competitive,”10 in contrast to procurements covered by § 3304(a)-(c) (the exception set forth in § 2887(a)(2)(A)), which applies only to procurements carried out using “non-competitive procedures.” See § 3304.

For the foregoing reasons, this court holds that defendant’s set aside does not violate the language of 29 U.S.C. § 2887(a)(2)(A).

3. The Contracting Officer Is Not Required To Make a “Predicate Determination” As to “Fair Proportion”

But plaintiff’s challenge does not rely entirely on its interpretation of the WIA. In the alternative, plaintiff argues that the contracting officer violated 15 U.S.C. § 644(a) (the “fair proportion” provision) and FAR 19.502-1(a) (i.e., the “Rule of Two”), by setting aside the procurement without making a “predicate determination” as to whether a set-aside would be in the interest of assuring that a “fair proportion” of contracts go to small business concerns. Compl. ¶¶ 100-113, Pl.’s Cross-Mot. at 30-32.

The fair proportion provision provides, in relevant part, that

small-business concerns . . . shall receive any award or contract . . . as to which it is determined by the [Small Business] Administration and the contracting procurement or disposal agency . . . to be in the interest of assuring that a fair proportion of the total . . .contracts for . . . services for the Government in each industry category are placed with small business concerns. . . . These determinations may be made for individual awards or contracts or for classes of awards or contracts.

15 U.S.C. § 644(a).

Section 644 is implemented in part by FAR 19.502-1 (“Requirements for setting aside acquisitions”) and FAR 19.502-2(b) (the Rule of Two). FAR 19.502-1 provides the following:

The contracting officer shall set aside an individual acquisition or class of acquisitions for competition when—

(1) It is determined to be in the interest of maintaining or mobilizing the Nation’s full productive capacity, war or national defense programs; or

(2) Assuring that a fair proportion of Government contracts in each industry category is placed with small business concerns; and the circumstances described in 19.502-2 [i.e., the Rule of Two] . . . exist.

FAR 19.502-1(a) (emphasis added). The Rule of Two, in turn provides, in relevant part, that

The contracting officer shall set aside any acquisition over $150,000 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.

FAR § 19.502-2(b).

The parties agree that the “fair proportion” determination described in § 644(a) must be made at some level, but disagree as to whether FAR 19.502-1(a)(2) requires the contracting officer to make that determination in each procurement as a “predicate” to setting aside the procurement. The plaintiff argues that the conjunction “and” in subheading (2) indicates that the “assuring” clause before the conjunction and the “circumstances described . . .” clause after the conjunction are two separate requirements that must be met by the contracting officer in order for the contracting officer to set aside a procurement. Accordingly, the plaintiff concludes that the language of FAR 19.502-1(a)(2) mandates that the contracting officer—not some senior policy official—determine in each individual procurement whether that particular procurement is necessary to carrying out the “fair proportion” requirement set out in 15 U.S.C. § 644(a). See Compl. ¶¶ 100-113, Pl.’s Cross-Mot. at 30-32. The defendant does not directly address the meaning of the word “and” in FAR 19.502-1(a)(2),12 but argues that plaintiff’s interpretation is incorrect in light of other provisions in § 644.

The issue presented by the plaintiff is one of statutory interpretation. Principles of statutory interpretation dictate that the court begin its analysis with the text of the regulation at issue because, if the terms of the regulation are unambiguous, the plain language of a regulation is controlling. See Jimenez v. Quarterman, 555 U.S. 113, 118 (2009); Shoshone Indian Tribe of the Wind River Reservation v. United States, 364 F.3d 1339, 1345 (Fed. Cir. 2004). If the language is clear, “the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.” Hartford Underwriters Ins. Co. v. Union Planters Bank, N. A., 530 U.S. 1, 6 (2000) (internal quotation marks omitted).

Clearly, the opening phrase of FAR 19.502-1(a)(2) (“the contracting officer shall . . .) requires the contracting officer to set aside a procurement if the requirement or requirements of subheading (2) are met. The issue here is whether subheading (2) contains only a single requirement or two separate requirements that must be met by the contracting officer. The Federal Circuit recently addressed the meaning of FAR 19.502-1(a)(2) in a companion case. See Adams & Associates, Inc. v. United States, 2013-5077, 2014 WL 274507 (Fed. Cir. Jan. 27, 2014). The plaintiff in Adams, like Management, brought a bid protest in this court, challenging DOL’s decision to set aside a procurement for the operation of Job Corps centers. In Adams, the Federal Circuit held that plaintiffs’ “formulation [of FAR 19.502-1(a)(2)] is refuted by the plain language of the Regulation,” and can only be reached by “rephrase[ing]” the regulation. Id. at 7.

Like the Federal Circuit, this court finds that plaintiff’s interpretation of FAR 19.502-1(a) is flawed for several reasons. First, the use of the progressive tense (“assuring”) in the clause before the conjunction in FAR 19.502-1(a)(2) calls into question the plaintiff’s argument that both the clause preceding the conjunction and the clause following the conjunction are operative. Specifically, the use of the progressive tense is not grammatically parallel to the other clauses in FAR 19.502-1(a)(2) that obviously do express a condition—i.e., “[t]he contracting officer shall set aside . . . when . . . it is determined to be in the interest” and “[t]he contracting officer shall set aside when . . . the circumstances described . . . are met.” C.f. “[t]he contracting officer shall set aside . . . . when . . . assuring that a fair proportion. . . .”

Second, the phrase “assuring that a fair proportion . . .” also appears, with the exact same wording, in 15 U.S.C. § 644(a), which states more broadly that the determination is to be made “by the [Small Business] Administration and the contracting procurement or disposal agency.” See Adams, 2014 WL 274507, at *7 (finding that plaintiff’s “formulation . . . . finds no support in the Small Business Act, from which the ‘fair proportion’ language originated”). The use of that same language in FAR 19.502-1(a)(2) appears to be a sloppy backward reference to the overall statutory goal of promoting small businesses, which is advanced by applying the “Rule of Two.” In light of the grammar and structure of FAR 19.502-1(a), the “assuring” clause is best understood as a prefatory clause, which “announces a purpose but does not limit or expand the scope” of the operative clause that follows. D.C. v. Heller, 554 U.S. 570, 578 (2008) (analyzing the syntax of the Second Amendment). Additionally, even if the court were to find that FAR 19.502-1(a)(2) does in fact contain two express conditions, the provision does not explicitly specify that the contracting officer must be the person who should do the “assuring” or who should determine that “the circumstances described in 19.502-2” are met.

Finally, as the Federal Circuit observed, “the plain language of [§644] repudiates [the plaintiff’s] suggestion that the ‘fair proportion’ determination is part of a two-part process executed by a contracting officer. There is no indication in the Small Business Act that the . . . determination must be made on a contract-specific basis.” Adams, 2014 WL 274507, at *7. In fact, plaintiff’s position that the contracting officer must make a “predicate determination” conflicts with the applicable federal statute, which states more broadly that the determination is to be made “by the [Small Business] Administration and the contracting procurement or disposal agency.” 15 U.S.C. § 644(a). Moreover, as defendant points out, other subsections of § 644 demonstrate that the “fair proportion” determination is a policy decision to be made by a senior official, not the contracting officer. For instance, subsection (g) of § 644 calls on the President to “annually establish Government-wide goals for procurement contracts awarded to small business concerns . . . not less than 23 percent of the total value of all prime contract awards for each fiscal year.” § 644(g)(1)(A)(i). Subsection (g) also requires each agency to set “an annual goal that presents, for that agency, a maximum practicable opportunity for small business concerns . . .” § 644(g)(1)(B). Moreover, subsection (h) requires each agency to submit an annual report to Congress, the President, and the public stating whether it has achieved its goals, and if not, “any justifications for a failure to achieve such goals.” § 644(h)(1). These provisions call for broad, agency-wide decisions and are clearly at odds with plaintiff’s argument that FAR 19.502-1(a)(2) requires the contracting officer to make a predicate determination for every single procurement.

Applying Adams, the court finds that the DOL’s fair proportion determination was not arbitrary and capricious or contrary to law.

4. The Contracting Officer’s Rule of Two Determination Was Not Arbitrary or Capricious

Plaintiff’s final argument is that ETA acted arbitrarily and capriciously in its application of the Rule of Two because the contracting officer failed to give proper consideration to the selection criteria listed in 29 U.S.C. § 2887(a)(2)(B)(i), as well as certain other non-statutory criteria that the ETA had used in the past.

The “Rule of Two,” as stated above, requires the contracting officer to “set aside any acquisition over $150,000 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.” FAR § 19.502-2(b) (emphasis added). The four statutory requirements listed in the WIA, 28 U.S.C. § 2887(a)(2)(B)(i), are quoted in full above.

To begin with, the decision to set aside a solicitation “is a matter of business judgment within the contracting officer's discretion and, as such, must be upheld unless the Court finds the decision to be arbitrary, capricious, an abuse of discretion or otherwise not in accordance with the law.” Benchmade Knife Co. v. United States, 79 Fed. Cl. 731, 738 (2007) (internal quotation omitted); see also Dynamic Educ. Sys., Inc., 109 Fed. Cl. at 326; Adams and Associates, Inc. v. United States, 109 Fed. Cl. 340, 356 (2013). This standard requires only that the agency’s decision be supported by a rational basis. 28 U.S.C. § 1491(b)(4) (incorporating 5 U.S.C. § 706); Banknote Corp. of Am., Inc. v. United States, 365 F.3d 1345, 1350–51 (Fed. Cir. 2004). Moreover, although “the assessment must be based on sufficient facts so as to establish its reasonableness,” no “particular method of assessing the availability of small businesses” is required. Gear Wizzard, Inc. v. United States, 99 Fed. Cl. 266, 282-83 (2011) (quoting Rochester Optical Mfg. Co., B–292247 et al., 2003 WL 21884877, at *3 (Comp. Gen. Aug. 6, 2003)).

a. DOL Reasonably Expected To Receive Offers from At Least Two Responsible Small Business Concerns

Plaintiff contends that DOL acted arbitrarily and capriciously by finding that three of the respondents to the RFI were capable without fully considering all the statutory and non-statutory criteria listed above, including past performance and capacity to operate additional JCCs. The contracting officer applied the twelve criteria included in the RFI and found that three of the four small businesses that applied were responsible. However, as the plaintiff observes, the contracting officer’s primary basis for its conclusion is that all three small businesses are currently operating or have recently operated another JCC. Pl.’s Reply at 35 (citing AR tab 6 at 42-44). Moreover, the contracting officer stated that she had a “reasonable expectation that [the] award [would] be made at fair market price” because all three companies had been found capable and would be submitting proposals in a competitive environment. Id. (citing AR tab 6 at 42). Plaintiff argues that the contracting officer did not consider the higher overhead rates for small businesses, as well as the performance rankings of the three small businesses who responded to the RFI. Id.

Plaintiff’s approach is flawed because it “conflates a set-aside determination with a responsibility determination made pursuant to FAR § 9.1041.” Adams, 2014 WL 274507, at *8. As defendant points out, the statutory criteria plaintiff refers to are to be considered at the award stage; there is no requirement that they be considered at the set-aside stage. 29 U.S.C. § 2887(a)(2)(B)(i) (stating that “In selecting an entity to operate a Job Corps center, the Secretary shall consider . . .”) (emphasis added); see Dynamic Educ. Sys., 109 Fed. Cl. at 327 (“it is not required or practical at this [set-aside] stage . . . for the contracting officer to conduct a full responsibility evaluation”); see also Adams, 2014 WL 274507, at *8. The Rule of Two only requires that the contracting officer have a “reasonable expectation” that at least two responsible small businesses will be able to make offers at fair market prices.

Additionally, the contracting officer is under no obligation to award the procurement to any of the RFI respondents. Mgmt. & Training Corp. v. United States, 12-561C, 2013 WL 3944270, at *12 (Fed. Cl. July 25, 2013). Should the contracting officer eventually find that none of the offers made by small businesses in response to the solicitation are responsible, then FAR § 19.502-2(a) requires that “the set-aside be withdrawn and . . . be resolicited on an unrestricted basis.” As the court has observed, “[t]he threshold for meeting the criteria of the Rule of Two is purposefully low and is counterbalanced by FAR provisions that provide direction in the event of a failed set-aside.” Dynamic Educ. Sys., 109 Fed. Cl. at 328.

Finally, the court finds that the ETA’s methodology in past set-aside decisions is irrelevant in this case; the only issue before the court is whether the ETA had a rational basis for this particular set-aside. The matrix in the administrative record shows that the contracting officer applied all twelve criteria from the RFI, and the fact that the contracting officer excluded one of the small business concerns shows that the contracting officer took the criteria seriously. See AR tab 6 at 42-44.

b. DOL Reasonably Expected an Award To Be Made at Fair Market Prices

Plaintiff argues that the contracting officer’s determination that an award could be made to a small business concern at fair market price lacks a rational basis because the contracting officer failed to consider small business concerns’ higher indirect cost rates. Plaintiff also argues that the contracting officer acted irrationally in basing her expectation that there would be at least two responsible bidders competing for the contract.
Plaintiff, however, confuses fair market price with lowest possible price. The Rule of Two only requires “fair market prices,” not lowest cost. See FAR 19.001. In fact, the reason Congress passed the Small Business Act was to favor small businesses, which are presumably unable to compete purely on the basis of price.14 Accordingly, plaintiff’s evidence that larger businesses provide better value to the ETA is better directed at Congress, not this court. Moreover, the court finds that the contracting officer’s reliance on expected competition among responsible bidders is reasonable in light of the fact that the applicable criterion is “fair market price,” rather than lowest price. Mgmt. & Training Corp. v. United States, 12-561C, 2013 WL 3944270 (Fed. Cl. July 25, 2013) (“[t]he most natural method of forming a reasonable expectation that an award will be made at a fair market price is to rely on a contracting officer’s expectation of competitive bidding”) (citing Walden Sec., B–407022, 2012 WL 4903367, at *5 (Comp.Gen. Oct. 10, 2012)).

For the foregoing reasons, the court finds that the defendant’s Rule of Two determination was not arbitrary or capricious.  (Management & Training Corp. v. U. S., No 12-683C, March 14, 2014)  (pdf)

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B. The Fair Proportion Determination

Plaintiff claims that DOL failed to make the “fair proportion” determination contemplated by 15 U.S.C. § 644(a) (2006). For purposes of this argument, plaintiff assumes that the Rule of Two set-aside process called for by FAR part 19.502-1(a) is not per se improper, but that it is independent of a prior determination made under Section 644(a), which assesses whether it is appropriate to contemplate a set-aside in order to maintain a “fair proportion” of small-business participation in a particular industry category.

 Section 644(a) is found in Title 15 (Commerce), Chapter 14a (Aid to Small Business):

To effectuate the purposes of this chapter, small-business concerns within the meaning of this chapter shall receive any award or contract or any part thereof, and be awarded any contract for the sale of Government property, as to which it is determined by the Administration and the contracting procurement or disposal agency . . . (3) to be in the interest of assuring that a fair proportion of the total purchases and contracts for property and services for the Government in each industry category are placed with small business concerns . . . . These determinations may be made for individual awards or contracts or for classes of awards or contracts. . . . For purposes of clause (3) of the first sentence of this subsection, an industry category is a discrete group of similar goods and services. Such groups shall be determined by the Administration in accordance with the definition of a “United States industry” under the North American Industry Classification System [NAICS], as established by the Office of Management and Budget . . . .

15 U.S.C. § 644(a).

It is plaintiff’s position that this predicate determination as to a “fair proportion” must be made by the contracting officer prior to the set-aside determination made under FAR part 19.502-1(a). It points out that the Rule of Two regulation contains the conjunction “and” when referring to the “fair proportion” determination:

 (a) The contracting officer shall set aside an individual acquisition or class of acquisitions for competition among small businesses when—

(1) It is determined to be in the interest of maintaining or mobilizing the Nations full productive capacity, war or national defense programs; or

(2) Assuring that a fair proportion of Government contracts in each industry category is placed with small business concerns; and the circumstances described in 19.502-2 [the “Rule of Two”] . . . exist.

48 C.F.R. § 19.502-1(a) (emphasis added).

Plaintiff envisions that prior to any procurement process in any executive agency, the contracting officer would consult with a representative from the OSDBU and consider the current level of small business participation within the industry category and the capacity of those small businesses to take on new contracts prior to determining whether setting aside a particular contract would be in the interest of assuring a fair proportion. Depending on the outcome, this analysis presumably could render application of the Rule of Two unnecessary. Plaintiff asserts that the “fair proportion” analysis was not conducted in this case and that had it been conducted, then Shriver may not have been set aside.

Defendant does not disagree that a fair proportion determination has to be made at some level, but argues that it looks very different from the contractspecific process plaintiff calls for. It contends that the structure of Section 644 suggests that the determination contemplated by Section 644(a) is not made in the context of individual contracts, but is reflected in high level policy judgments made on an ongoing and iterative basis by the President and the heads of agencies. According to defendant, it should not be assumed that subsection (a) requires any particular form of a determination; Congress was not literally insisting that the contracting officer make a formal study of what impact a particular contract would have on the ratio of small to large businesses in a specific industry category. Instead, discretion was left to the Executive Branch to work out a means to accomplish an end. Defendant argues that FAR part 19.502-2, the Rule of Two, is the means by which the Executive Branch has chosen to satisfy the obligation to determine a fair proportion of contracts to be awarded to small businesses.

This position was endorsed by the Comptroller General in Delex Systems, Inc.:

The origin of the Rule of Two predates the FAR; when the FAR was promulgated, the Office of Federal Procurement Policy (OFPP) prepared a Federal Register notice seeking comments on the rule’s inclusion in the new government-wide procurement regulation. 49 Fed. Reg. 40135 (Oct. 3, 1984). This notice explains that the Rule of Two is intended to implement the Small Business Act language in 15 U.S.C. sect. 644(a), quoted above, requiring that small businesses receive a “fair proportion of the total purchases and contracts for property and services for the Government.” Id. In addition, the notice advised that, in the view of OFPP, “the FAR language complies with current law and reflects the will of the Congress as expressed in the Small Business Act.” Id. Thus, while the Rule of Two is not specifically set out in the Small Business Act, it has been adopted as the FAR’s implementation of the Act’s requirements through notice and comment rulemaking.

B-400403, 2008 WL 4570635, at *5 (Comp. Gen. Oct. 8, 2008).

Admittedly, this interpretation assumes that the use of the conjunction “and” in FAR part 19.502-1(a) was merely infelicitous drafting. Nevertheless, we believe that clues within Section 644 itself, as well as within other code provisions, and the difficulties attendant on implementing plaintiff’s interpretation, suggest that defendant’s interpretation is correct.

Section 644 itself sets up a larger scheme of promoting small-business contracting that seems incompatible with a prior, rigid, contract-by-contract determination by contracting officers of whether a “fair proportion” has been achieved. Subsection (g) of Section 644, for example, calls for the President to set government-wide goals, in percentage terms for small business participation in contracting:

[t]he President shall annually establish Government-wide goals for procurement contracts awarded to small business concerns . . . . Notwithstanding the Government-wide goal, each agency shall have an annual goal that presents, for that agency, the maximum practicable opportunity for small business concerns.

15 U.S.C. § 644(g). The agency-wide goal will be set by the “head of each Federal agency, after consultation with the Administration.” Id. § 644(g)(2)(A). The purpose of these goals is to “make consistent efforts to annually expand participation by small business concerns from each industry category in procurement contracts of the agency.” Id. § 644(g)(2)(D). An enforcement mechanism of sorts exists in subsection (h), which calls for annual reports to Congress and the President as to the agencies’ level of success in meeting goals for small business contracting. Id. § 644(h).

Also integral to the operation of Section 644 is the appointment within each agency of a Director of the Office of Small and Disadvantaged Business Utilization. The OSDBU monitors performance in meeting goals and encourages “unbundling” contracts to make them more accessible to small businesses. In addition, one of the roles of the Director of OSDBU is to

make recommendations to contracting officers as to whether a particular contract requirement should be awarded pursuant to subsection (a) of this section, or section 637(a) of this title or section 2323 of Title 10. Such recommendations shall be made with due regard to the requirements of subsection (m) of this section, and the failure of the contracting officer to accept any such recommendations shall be documented and included within the appropriate contract file.

Id. § 644(k)(10).

The “fair proportion” determination is also inextricably linked to the process by which the Office of Management and Budget creates NAICS industry codes and the SBA’s subsequent assignment of size standards for each NAICS code. When the contracting officer selects “the appropriate NAICS code and related small business size standard and [includes it] in solicitations,” 48 C.F.R. § 19.303(a), the effect is to incorporate a judgment made by the SBA as to what the appropriate small-business size standard is for a particular industry category. This standard can be adjusted, with the result that more or less companies are able to compete as small businesses.

Congress was obviously aware of this interplay between the fair proportion determination and the use of set-asides based on size standards. When Section 644 was amended in 1986 by the National Defense Authorization Act for Fiscal Year 1987, Pub. L. No. 99-661, § 921, 100 Stat. 3816, 3926-30 (1986), to add the requirement that the fair proportion determination be made on an industry category basis, the Report of the House Armed Services Committee noted the following:

The Small Business Act requires that a fair proportion of the total purchases and contracts for property and services needed by the Federal Government be placed with small business concerns. One procedure for accomplishing this objective is the small business set-aside program. . . .

. . . .

. . . . The recommended provision allows the SBA flexibility to evaluate the existing size standards and craft size standards consistent with the objectives of the Act. The committee has been advised that, in some industries such as the military boot manufacturing industry, only manufacturers exist, all of whom are classified as small businesses. An inappropriate reduction in size could result in two or three companies being classified as small, leaving the one or two companies not deemed small at a significant disadvantage in bidding those contracts. In circumstances such as those, the size standard should be reduced to a sufficient degree that all potential offerors with similar capabilities are treated similarly.

H.R. Rep. No. 99-718, at 256, 259 (1986). This strongly suggests that, even if Section 644 was initially adopted on the assumption that some other device would emerge to implement the “fair proportion” determination, Congress understood that set-asides were being used to accomplish that end. By then, of course, the Rule of Two was already in place. See 49 Fed. Reg. 40135-01 (Oct. 12, 1984).

In sum, we agree with defendant that the fair proportion determination was satisfied when the Contracting Officer applied the appropriate NAICS size standard, received the endorsement of the OSDBU, and then invoked the Rule of Two. The mechanisms contemplated by Section 644–goal setting by the Executive Branch, input from the OSDBU, and the industry specific application of size standards by OMB and the SBA–were implemented. We conclude that nothing more was required to satisfy the “fair proportion” requirement.

Although not necessary to the outcome, we also note that plaintiff was never able to articulate a clear means by which a single contracting officer could make a fair proportion determination in the context of a particular procurement. Of necessity, this would seem to call for a much broader vantage point, perhaps even outside the agency. Moreover, plaintiff was unable to offer any reasonable likelihood that a remand for a “fair proportion” determination would lead to a different outcome. Arguing that a new determination “might” come out differently would not satisfy the requirement of a non-trivial competitive injury. Nor could plaintiff offer any meaningful guidelines for the court to apply in determining whether the agency’s discretion had been abused. Reaching these arguments, however, is unnecessary considering our holding that the fair proportion analysis was conducted in compliance with statute.

C. Application of the “Rule of Two”

Plaintiff’s final argument is that the agency was arbitrary and capricious in the way it conducted its Rule of Two analysis. We disagree.

The Rule of Two states that the “contracting officer shall set aside any acquisition over $150,000 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 price.” 48 C.F.R. § 19.502-2(b). It is worth highlighting that the rule does not require that the particular companies who respond to the RFI actually be determined responsible. Rather, the test is simply whether it appears likely that, when the solicitation later moves forward, at least two responsible small businesses will appear.

Plaintiff offers several arguments to support the assertion that the Rule of Two decision was arbitrary and capricious. They fall into two categories: those that rely only on the materials that the government contends were properly before the Contracting Officer, i.e., materials related solely to the Shriver Job Corps Center, and those arguments that rely on material related to other Job Corps Centers.

As to the first category, plaintiff contends that Mr. Pendleton’s response that set-asides at Shriver and New Haven were “hard to swallow” evinces concerns that call into question the reasonable expectation required under the Rule of Two. Despite his initial reservations, however, Mr. Pendleton determined that a set-aside was reasonable.

Plaintiff also asserts that the set-aside decision was not reasonable because the “relevant factors” of capability, capacity, past performance, and award at fair market price were not thoroughly considered. Pl.’s Mot. J. AR 53. Plaintiff borrows the “relevant factors” from the FAR’s general standards for determining whether a prospective contractor is “responsible” to be awarded a contract. 48 C.F.R. § 9.104-1; see 48 C.F.R. § 9.103.

We begin with the reminder that whether to set aside a solicitation for small businesses “‘is a matter of business judgment within the contracting officer’s discretion.’” Gear Wizzard, Inc. v. United States, 99 Fed. Cl. 266, 282 (2011) (quoting Benchmade Knife Co. v. United States, 79 Fed. Cl. 731, 738 (2007)). The “law does not require any particular method.” Id.; see McKing Consulting Corp. v. United States, 78 Fed. Cl. 715, 724-25 (2007) (holding that the Rule of Two was satisfied when the contracting officer relied on market research and a history of successful procurements conducted as small business set-asides); Otis Elevator Co., B-195873, 1979 WL 11672 at *2 (Comp. Gen. Dec. 19, 1979) (rejecting plaintiff’s argument that inadequate past maintenance service by the incumbent small business invalidated the contracting officer’s reasonable expectation in the Rule of Two analysis). Crucially, the contracting officer need not make affirmative determinations of responsibility, Admiral Towing & Barge Co., B-291849 et al., 2003 WL 22309106, at *3 (Comp. Gen. March 6, 2003), but need only have “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.” 48 C.F.R. § 19.502-2(b) (emphasis added); see The Protective Group, Inc., B-310018, 2007 WL 4097385, at *4 (Comp. Gen. Nov. 13, 2007).

Past acquisition history may be relevant to the Rule of Two analysis, but “it is not the only factor to be considered in determining whether a reasonable expectation exists.” 48 C.F.R. § 19.502-2(b)(2). “The contracting officer may consider and base its decision on such factors as prior procurement history, the nature of the contract, market surveys, and/or advice of the agency’s small business specialist.” MCS Mgmt., Inc. v. United States, 48 Fed. Cl. 506, 512, 514 (2000). Additionally, it is not required or practical at this stage of the procurement process for the contracting officer to conduct a full responsibility evaluation. Fermont Div., Dynamics Corp., B-195431, 1980 WL 18035, 59 Comp. Gen. 533, 538-40 (1988). Rather, the contracting officer need only reasonably expect that likely offerors will “be capable of surviving a future responsibility determination.” Greenleaf Const. Co., Inc. v. United States, 67 Fed. Cl. 350, 358 (2005).

The small businesses responding to the RFI furnished the Contracting Officer with substantial narrative descriptions of their experience and prior history on related work. See AR 9-67. While it is true that the rationales offered for finding the entities potentially responsible, which were relied on to show a sufficient pool of available small businesses, consisted uniformly of “currently operates JCC,” it is not irrational to assume that,“[s]ince these [two] respondents have been awarded [Job Corps Center] contracts it’s anticipated that similar small businesses will provide a competitive proposal that is based on fair market price for the operation of the Shriver Job Corps Center.” AR 73. While the Rule of Two analysis was not extensive, an extensive analysis was not required.

Plaintiff contends, however, that Mr. Pendleton’s analysis was too narrow. It argues that to artificially limit the Rule of Two analysis to what was in front of Mr. Pendleton is to ignore the evidence in the record that suggests that OCM led the decision-making process and had before it all of the information regarding Job Corps Center set-asides occurring contemporaneously across the nation. While it may have been reasonable for Mr. Pendleton to conclude that the Rule of Two was satisfied when two small businesses with operations experience expressed interest in the Shriver center, plaintiff asserts that it was not reasonable when OCM “decided to set-aside 13 [Job Corps Centers] for competition amongst a maximum of three small businesses, which between them operated only four [Job Corps Centers].” Pl.’s Mot. J. AR 50. In support of its position, plaintiff cites material it included as an appendix to its motion for judgment on the administrative record.

The materials outside the record furnished initially by the government consist of notices posted on the Federal Business Opportunities website, including RFIs, Pre-solicitation Notices, Solicitations, and Award Notices for other Job Corps Centers, Outcome Measurement System data that is available on DOL’s website, a Master Procurement Schedule for all Job Corps Centers, and set-aside memorandum and OCM internal emails obtained from the administrative records of other cases. If we admitted the material into the administrative record here, it would show, in substance, a pattern of set-asides made in reliance on expressions of interest from a relatively limited pool of small businesses. Plaintiff asks us to remand so that the Contracting Officer may take into consideration all of this material in his set-aside decision. See Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985) (“If the record before the agency does not support the agency action, if the agency has not considered all relevant factors, or if the reviewing court simply cannot evaluate the challenged agency action on the basis of the record before it,” then the court ought “to remand to the agency for additional investigation or explanation.”).

Although at first glance the pattern established by this material might seem problematic, we conclude that it is not the court’s role to second guess the agency’s decision to rely on the mechanisms it had available to address the problem. For example, after the solicitation, when the contracting officer reviews proposals, he will conduct a responsibility determination pursuant to FAR part 9.104-1, which takes into account all of the bidder’s “existing commercial and governmental business commitments,” past performance, capacity, and capability. If there are no acceptable offers from responsible small businesses in response to a set-aside, then FAR part 19.502-2(a) states that “the set-aside shall be withdrawn and . . . be resolicited on an unrestricted basis.” In addition, if only one offer is received from a responsible small business in response to a set-aside then the contracting officer has discretion to withhold an award. 48 C.F.R. § 19.502-2(a). Even if only one offer is received, moreover, that bidder would have been under the impression that it was in competition with others at the time it priced its proposal. Additionally, if the proposals do not initially reflect a fair market price, then a fair price may be negotiated pursuant to FAR part 15, and “[e]xcept as authorized by law, a contract may not be awarded as a result of a small business set-aside if the cost to the awarding agency exceeds the fair market price.” 48 C.F.R. § 19.501(g).

We think it was not irrational to rely on the mechanisms cited above to remedy problems with limited competition. Any other outcome would require the court to speculate about at least four variables: the entities submitting bids, the dates of the solicitations announced by the government, the degree of overlap in the interest by bidders, and finally, the contract performance start dates. The Rule of Two is part of a larger framework in the FAR established to benefit small businesses. All that is required is a reasonable expectation. The threshold for meeting the criteria of the Rule of Two is purposefully low and is counterbalanced by FAR provisions that provide direction in the event of a failed set-aside. We conclude that, even if the materials related to other Job Corps Centers were in front of us, the result here would be the same. Therefore, we decline to include it in the administrative record because it is not necessary for effective judicial review. Axiom, 564 F.3d at 1381 (citing Camp v. Pitts, 411 U.S. 138, 142-43 (1973)). The Contracting Officer’s decision to set-aside the Shriver center was not arbitrary and capricious.  (Adams and Associates, Inc., v. U. S., No. 12-731C, February 28, 2013)  (pdf)

 I.     Background

On October 12, 2010 defendant issued RFQ-0043 for the procurement of 533 shifter forks. AR 9-11 (RFQ-0043). Shifter forks were listed as “a critical application item” and are part of the shifting mechanism in M939 series five-ton trucks. AR 11 (RFQ-0043); AR 254 (Apr. 1, 2011 Contracting Officer Memorandum for Record (CO Memo)). The Original RFQ was issued as a small business set-aside [SBSA], AR 9 (RFQ-0043); the estimated value of the Original RFQ was $73,551, AR 99 (DLA memo).

(sections deleted)

On November 29, 2010, nearly five weeks after the October 26, 2010 closing date for offers, AR 9 (RFQ-0043), the DLA buyer of shifter forks, [Elizabeth ______], prepared a “Memo for file” that sought the dissolution of the SBSA associated with the Original RFQ, AR 99 ([______] Memo); AR 254-55 (CO Memo). Ms. [______] “reviewed the procurement and made a determination that the solicitation should not have been set aside to begin with.” AR 254 (CO Memo). Citing DAG 19.502-2(b)(ii)(a), Ms. [______] reasoned that there was not a “reasonable expectation that two or [more] small business concerns were going to offer the product of [a] small business manufacturer.” AR 255 (CO Memo); AR 99 ([______] Memo); see FAR 19.502-2(a).

Ms. [______’s] memo was never reviewed or approved by the contracting officer, Richard [____] (Mr. [____]). AR 255 (CO Memo); id. at 257 (identifying Mr. [____] as the contracting officer). Ms. [______] believed, however, that the SBSA had been dissolved and “proceeded as if the solicitation had been issued on an unrestricted basis.” AR 255 (CO Memo). On December 15, 2010 defendant awarded the contract to Science Applications International Corporation (SAIC), a large business concern, which offered shifter forks manufactured by AxleTech International (AxleTech). AR 254-55 (CO Memo); see AR 133-51 (SAIC Purchase Order). At the time of the award to SAIC, the DLA product specialist believed that AxleTech had been previously approved as a source of shifter forks. AR 159, 165 (Dec. 20, 2010 DLA email correspondence between Meritor and DLA); AR 183 (Dec. 21, 2010 DLA email). However, AxleTech’s shifter forks were not acceptable because their dimensions “prevent[ed] the fork from fitting on the transfer clutch.” AR 205 (May 21, 2009 DSCC email); AR 255 (CO Memo) (stating that the SAIC offer of AxleTech-manufactured shifter forks “had been erroneously determined to be [] acceptable”).

On December 16, 2010 Meritor contacted Ms. [______] and “advised that the award was improper because SAIC [was] not supplying either an approved Meritor or GWI [shifter fork].” AR 256 (CO Memo). The following day, GWI objected to the award and requested a debriefing pursuant to FAR 15.506. AR 180 (Dec. 17, 2010 GWI email). The court received GWI’s Complaint on January 4, 2011. See Compl. 1.

After recognizing that that the AxleTech part was “technically unacceptable,” AR 213 (Dec. 30, 2010 DLA email), defendant cancelled its award to SAIC on January 3, 2011, AR 229 (SAIC Cancellation Order); AR 216 (Jan. 3, 2011 DLA email), and canceled the Original RFQ shortly thereafter, see AR 261 (Procurement History) (stating that RFQ-0043 was canceled); Pl.’s Resp. 2 (stating that the AR does not indicate when defendant cancelled RFQ-0043, “but it would seem eminently reasonable to presume that such cancellation did not occur before the cancellation/termination” of the award on January 3, 2011); EDR 4:27:00-14 (Mr. [__________]) (representing that RFQ-0043 was cancelled between January 3 and January 5, 2011).

Defendant subsequently issued, and ultimately canceled, at least three additional shifter fork acquisition solicitations in January and March of 2011.5 See Def.’s Opp’n to Pl.’s Mot. to Supplement the Administrative R. (Def.’s Opp’n), Dkt. No. 49, at 2-3 (referring to RFQ-0333 as the Second RFQ, RFQ-0423 as the Third RFQ and RFQ-0606 as the Fourth RFQ). On January 11, 2011 defendant “attempted to re-procure the shifter forks through unrestricted competition by issuing Request for Quotations SPM7L3-11-Q- 0333 [(RFQ-0333 or Second RFQ)].”6 Id. at 2; AR 237 (RFQ-0333) (listing January 11, 2011 as the issue date). Defendant canceled the Second RFQ ten days later after discovering documentation problems. Def.’s Opp’n 2; Pl.’s Corrected Updated Mot. to Supp. the R., Dkt. No. 43, Ex. 6 (Notice of Cancellation of RFQ-0333). On January 26, 2011 defendant’s automated procurement system issued SPM7L3-11-Q-0423 (RFQ-0423 or Third RFQ) in error. Def.’s Opp’n 2; Pl.’s Corrected Updated Mot. to Supp. the R., Ex. 7 (RFQ-0423). “Because it was not ready to proceed with a re-procurement at that time,” Def.’s Opp’n 2, defendant canceled the Third RFQ on February 1, 2011, Def.’s Notice, Dkt. No. 28, at 1. In late March of 2011, defendant’s automated procurement system again issued a solicitation in error, SPM7L3-11-Q-0606 (RFQ-0606 or Fourth RFQ), and it was canceled shortly thereafter. Def.’s Opp’n 3; see Pl.’s Corrected Updated Mot. to Supp. the R., Ex. 9 (Apr. 5, 2011 DLA email).

B. Parties’ Cross Motions for Judgment on the Administrative Record

1. Defendant’s Cancellation of RFQ-0043 and Subsequent RFQs

(sections deleted)

The administrative record shows that the award of the Original RFQ to SAIC contained at least two significant errors. First, although the Original RFQ was issued as a small business set aside, defendant nevertheless awarded the contract to a large business concern. Second, the awardee was offering an unapproved product manufactured by AxleTech. The administrative record indicates that it was the second defect that prompted the contracting officer to cancel the Original RFQ. On December 30, 2010 Mr. [____] received an email from DLA’s Senior Counsel, which states:

The problem is the AxleTech part (that we previously bought) is technically unacceptable. See attached documents.

That is why I said that a statement similar to the following needs to be inserted in the PID/AID/POT: “AxleTech Part number 3296-C-107 is not acceptable.” Or something needs [to be] done that will prevent future product specialists from approving this item for award as “previously supplied[.]”

As far as what action is to be taken. SAIC’s contract needs to be canceled. Hopefully we can get a no-cost cancellation.

The only question is whether we want [to] just cancel the requirement and start over or make an award to the best value offeror that is providing a technically acceptable part.

AR 217 (Dec. 30, 2010 DLA email) (emphasis added) (footnote added). On January 3, 2011 a contracting officer notified DLA’s Senior Counsel that the SAIC purchase order was being cancelled. AR 213 (Jan. 3, 2011 DLA email).

The December 30, 2010 email from DLA’s Senior Counsel is the most relevant and closely contemporaneous document in the AR regarding the cancellation of RFQ-0043. The email proposed two options for dealing with the non-conforming AxleTech part: start over by issuing a new RFQ or “make an award to the best value offeror that is providing a technically acceptable part.” AR 217 (Dec. 30, 2010 DLA email). Both options were reasonable given the AxleTech error, and it appears to the court that Mr. [____] chose the former in order to “prevent future product specialists from approving [the AxleTech part] for award as ‘previously supplied.’” See id. The fact that plaintiff would have preferred Mr. [____] to have made an “award to the best value offeror that is providing a technically acceptable part,” id., is not relevant to Mr. [____]’s decision. It does not appear that Mr. [____] was offered an alternative justification for cancellation, namely, that the solicitation did not properly notify offerors that the AxleTech part was unacceptable. See id.

Plaintiff argues that it “had an absolute right to the award” of the original RFQ under FAR 19.502-2(a). Pl.’s Mem. 15. Defendant disagrees. Def.’s Reply 4. FAR 19.502-2(a) states, in relevant part:

Each acquisition of supplies . . . is automatically reserved exclusively for small business concerns and shall be set aside for small business unless the contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of market prices, quality, and delivery. . . . If the contracting officer receives only one acceptable offer from a responsible small business concern in response to a set-aside, the contracting officer should make an award to that firm.

FAR 19.502-2(a).

Defendant first argues that the “snippet of language in section 19.502-2(a)” relied upon by plaintiff does not apply if “‘the contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive.’” Def.’s Reply 4 (quoting FAR 19.502-2(a)). According to defendant, because DLA “‘at no time’ had such ‘a reasonable expectation’ of competition in connection with [the Original RFQ],” Def.’s Reply 4 (quoting AR 256-57 (CO Memo)), plaintiff’s reliance on FAR 19.502-2(a) is inapposite, id. Defendant claims that, if DLA had placed an order with GWI under the Original RFQ “at a time when the agency already had determined that the Original RFQ was improper,” DLA “arguably would have abused its discretion.” Def.’s Mot. 22 (citing AR 256 (CO Memo)).

Defendant also contends that:

[t]his case is unlike a situation where the agency does have a reasonable expectation of receiving two or more quotes from small businesses offering the product manufactured by a small business and properly sets aside the procurement for small business, but for whatever reason, the agency only receives one such quote from a responsible firm. Under those
circumstances, not present here, the agency normally would place an order with the firm that submitted the quote.

Def.’s Mot. 22-23 (emphasis in original) (citing FAR 19.502-2(a)). Defendant’s position is that here, however, DLA “did not have a reasonable expectation of receiving two or more quotes from small businesses offering the product manufactured by a small business, and the agency concluded that the Original RFQ was improperly set aside for small business.” Id. at 23 (emphasis in original) (citing AR 99 (Ms. Hanlon Memo); AR 256 (CO Memo); AR 262 (Procurement History)). Defendant concludes that GWI’s argument “that the agency violated the law by trying to adhere to it makes no sense.”Id.

Defendant argues in the alternative that FAR 19.502-2(a) “is not mandatory and does not direct the agency to make an award to any particular firm or to make any award at all.” Def.’s Reply 4 (citing FAR 19.502-2(a)). As defendant correctly points out, FAR 19.502-2(a) employs “should,” a permissive term that “reserves discretion to the agency.” Def.’s Reply 4 (citing United States v. UPS Customhouse Brokerage, Inc., 575 F.3d 1376, 1382 (Fed. Cir. 2009) (comparing “will,” which is “a mandatory term, not a discretionary one,” with “discretionary terms such as ‘should’” when interpreting a different federal regulation)); 3 Norman J. Singer & J.D. Shambie Singer, Sutherland Statutes and Statutory Construction § 57:3, at 30 (7th ed. 2008) (“‘Should’ generally denotes discretion and should not be construed as ‘shall.’”); see Cybertech Grp., Inc. v. United States, 48 Fed. Cl. 638, 649 (2001) (“[I]n everyday discourse, ‘shall’ is used to denote an affirmative command or obligation whereas ‘should,’ by contrast, is used to denote a request or suggestion.”). The court agrees with defendant that the regulations do not compel the agency to make an award to GWI.

2.   Defendant’s Dissolution of the SBSA for Shifter Fork Procurements

Plaintiff requests that the court declare that the dissolution of SBSA status for the “subject procurements is unlawful, arbitrary, capricious, and erroneous,” and permanently enjoin the dissolution of SBSA status for shifter fork procurements. Pl.’s Mem. 2. Plaintiff maintains that GWI received ten requests for quotation from small businesses to supply shifter forks for the cancelled Second RFQ. Id. at 11. Plaintiff further argues that DLA’s sudden cancellation of the Third RFQ “again left [GWI] with no opportunity to provide quotes in response to the Requests for Quotations from other small businesses.” Id.

Defendant maintains that the contracting officer’s decision to issue the New RFQ through unrestricted competition is rational. Def.’s Mot. 18. Defendant states that the contracting officer’s decision that no reasonable expectation existed that at least two small businesses would submit offers “was based upon a detailed analysis of the procurement history and the results of recent market research documented in the [AR].” Id. at 19 (citation omitted). Declaring that “‘competition is the bedrock principle of procurement law,’” id. at 22 (quoting Tyler Constr. Grp. v. United States, 83 Fed. Cl. 94, 99 (2008), aff’d, 570 F.3d 1329 (Fed. Cir. 2009)), defendant argues that GWI’s claim that DLA is required to set aside the subject RFQ for small business “is tantamount to requiring a sole source contract without meaningful competition—gaming the system—in clear derogation of Federal law,” id.

Defendant also disputes GWI’s speculation that “as many as ten or more small business firms might compete in the future with offers of Gear Wizzard’s shifter forks,” noting that, “to date, none of them have done so.” Id. at 20 (citing AR 262 (Procurement History)). According to defendant, GWI declined DLA’s “request for contact information for all but three of the firms, and those three firms indicated that they were not likely to compete.” Id. at 20-21 (citing AR 263 (Procurement History), 266-69 (DLA and GWI emails)). Defendant concludes, and the court agrees, that GWI fails to “point to any ‘hard facts’ in the record that would be necessary to impeach the agency’s good faith analysis of this fact intensive issue.” Id. at 21 (citations omitted).

According to the Procurement History, three previous procurements of shifter forks had been set aside for small business. AR 261 (Procurement History) (referring to RFQ-0326, RFQ-0409 and RFQ-0233). The first procurement issued as a SBSA followed GWI’s approval as a source of shifter forks, so it was reasonable for DLA “to expect that two or more of the many small business concerns that had previously supplied the Meritor part would likely offer the newly approved Gear Wizzard part.” AR 261 (discussing RFQ-0326). The Procurement History states that the second procurement should have been “solicitated as unrestricted, because the estimated value of the procurement was in excess of $25,000 . . . and the prior acquisition . . . demonstrated that there was no reasonable expectation that two or more small business concerns were going to offer the product of [a] small business manufacturer.” Id. (discussing RFQ- 0409). Finally, because the value of the third procurement was estimated to be below $25,000, it fell within the exception to the nonmanufacturer rule and was awarded to a small business concern that offered Meritor’s part. Id. (discussing RFQ-0233) (citing FAR 19.201(f)(7)).

Based on the Procurement History, which includes the fact that DLA has never received two or more quotes from small businesses offering shifter forks manufactured by a small business concern, DLA concluded that the Original RFQ should have been solicited as unrestricted. AR 262 (discussing RFQ-0043). The court agrees that DLA “had a rational basis for its finding that the Original RFQ erroneously had been designated as a set aside.” Def.’s Reply 3 (citing AR 262 (Procurement History)).

Moreover, the contracting officer’s market research indicates that it was difficult for other small businesses to compete with GWI’s price on its own product. In response to GWI’s January 22, 2011 email protesting the dissolution of the SBSA “for . . . any . . . Shifter Fork procurement,” AR 269-70 (Jan. 22, 2011 GWI email), the Acting Associate Director of DLA’s Small Business Programs Office, Ms. [_________], requested a list of these small business concerns, AR 269 (undated DLA email), “so that the contracting officer could conduct market research and confirm their ability to supply the Gear Wizzard part,” AR 262 (Procurement History). In an email dated February 5, 2011, GWI provided Ms. [_________] with the names of twenty-seven small businesses that could be “reasonably expected” to offer GWI’s part. AR 268 (Feb. 5, 2011 GWI email). GWI also noted that “[a]t least 18 small businesses submitted offers on [DLA’s] last aborted acquisition” of shifter forks. Id.

Apparently dissatisfied with this list of businesses, Ms. [_________] repeated her request for a list of “small businesses that are ready, willing and able to submit offers to supply the Shifter Forks manufactured by GWI.” AR 267 (undated DLA email). GWI ultimately provided Ms. [_________] with the names and addresses of three small businesses: Pioneer Ind., Inc. (Pioneer), JGILS, LLC (JGILS) and Kampi Components Co., Inc. (Kampi). AR 267 (Feb. 12, 2011 GWI email).

Ms. [______] contacted each of these three businesses and inquired: “If [shifter forks are] set-aside for small business concerns are you able to quote the Gear Wizzard part number GWI-C0107?” AR 278-79 (Feb. 15, 2011 [______] email to Pioneer); AR 275 (Feb. 15, 2011 Hanlon email to JGILS); AR 273 (Feb. 17, 2011 [______] email to Kampi). Pioneer stated that it doubted GWI would be “willing provide pricing as an estimate at this time.” AR 277 (Feb. 17, 2011 Pioneer email). JGILS simply responded: “We cannot quote this guy.” AR 275 (Feb. 15, 2011 JGILS email). Kampi’s response was more detailed, explaining that GWI quotes “direct on this item,” and that, therefore, GWI’s quote would “more than likely[] be more competitive” than Kampi’s. AR 272 (Feb. 17, 2011 Kampi email). The representative requested that the government refrain from soliciting Kampi for items that the government “intend[s] to award to the manufacturer anyway.” Id. Kampi’s representative further stated:

Kampi does our best to help with the needs of our government customer, however it has become cost prohibitive to constantly submit and subsequently update bids when the reality of the situation is that we will not receive the award. With that being said[,] yes[,] we are interested in quoting assuming our quotation is actually being considered. We are unable to provide an estimated delivery or unit price until we have a quantity.

Id.

Relying on this market research and the Procurement History, DLA determined that it did not “have a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of market prices, quality and delivery that will offer the approved part manufactured by Gear Wizzard,” and that the new procurement should be issued as unrestricted. AR 263 (Procurement History). Accordingly, DLA prepared a new DD Form 2579 “Small Business Coordination Record” recommending that the procurement be solicited on an unrestricted basis. AR 258-59 (DD Form 2579).

DLA shared its DD Form 2579, market research and the Procurement History with the SBA. AR 258-79 (DD Form 2579 and Attachment). A representative of SBA concurred in defendant’s recommendation that the procurement be solicited on an unrestricted basis. AR 258 (DD Form 2579). On April 1, 2011 defendant issued an unrestricted New RFQ for the procurement of 335 shifter forks (NSN-8717), with a closing date for offers on May 31, 2011. AR 280-82 (RFQ-0780). The estimated value of the Fifth RFQ is $37,114.65. AR 257 (CO Memo).

“The decision not to set aside a solicitation for small business concerns is a matter of business judgment within the contracting officer’s discretion and, as such, must be upheld unless the Court finds the decision to be arbitrary, capricious, an abuse of discretion or otherwise not in accordance with the law.” Benchmade Knife Co. v. United States, 79 Fed. Cl. 731, 738 (2007) (internal quotation omitted); see Admiral Towing & Barge Co., B-291849 et al., 2003 WL 22309106, at *3 (Comp. Gen. Mar. 6, 2003). “While the use of any particular method of assessing the availability of small businesses is not required, and measures such as prior procurement history, market surveys, and/or advice from the agency’s small business specialist and technical personnel may all constitute adequate grounds for a contracting officer’s decision not to set aside a procurement, the assessment must be based on sufficient facts so as to establish its reasonableness.” Rochester Optical Mfg. Co., B-292247 et al., 2003 WL 21884877, at *3 (Comp. Gen. Aug. 6, 2003) (internal citation omitted); see MCS Mgmt., Inc. v. United States, 48 Fed. Cl. 506, 511, aff’d, 25 F. App’x 957 (Fed. Cir. 2001). The court finds that the contracting officer’s decision to cancel the Original RFQ and issue the New RFQ on an unrestricted basis was reasonable, rationally based on sufficient facts and not in violation of law.  (Gear Wizzard, Inc. v. U. S., No. 11-007C, June 16, 2011)  (pdf) 

2. Application of the 50% rule under FAR 52.219-14

The SSS¹ required a respondent to demonstrate that it could perform 50% of the requirements itself. Ms. Lindom’s D & F states the following:

5. The senior leadership of the 709 NSS conducted an analysis to determine if there were potential small businesses that could successfully perform these new requirements in compliance with FAR 52.219-14, Limitation on Subcontracting, which requires at least 50% of the cost of contract performance incurred for personnel shall be expended for employees of the small business. They concluded that there were no small businesses that possessed adequate resources in the breadth of technical disciplines required by the 709 NSS.

AR at 406. Plaintiff argues that the contracting officer improperly and unreasonably utilized FAR 52.219-14 and applied the 50% rule in making the determination that there is not a reasonable expectation that two or more small businesses would submit offers for a solicitation.

FAR 52.219-14 provides, in relevant part:

(b) By submission of an offer and execution of a contract, the Offeror/Contractor agrees that in performance of the contract in the case of a contract for--
(1) Services (except construction). At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.

Defendant responds that FAR 52.219-14 would be included in any contract award because the limitation on subcontracting is a material term of a small business contract. As a consequence, defendant argues, the Air Force properly considered the limitation on subcontracting in evaluating the Statements of Capabilities because it was assessing whether small businesses could satisfy the material terms of the procurement and submit “technically acceptable offers.” Def.’s Br. filed May 4, 2009, at 8. The Air Force anticipated that some of its technical support would be made on an as-needed and short-term basis, sometimes within hours or days, as substantiated by Capt. Norman. See (First) Norman Declaration Mar. 26, 2009, ¶ 12.

In citing to Chapman Law Firm v. United States, 63 Fed. Cl. 519, 527 (2005), aff’d in part and rev’d and remanded in part on other grounds, 490 F.3d 934 (Fed. Cir. 2007), for support, defendant urges the court to view the 50% rule as a technical requirement that plaintiff show its personnel with the requisite skills and experience to meet the Air Force’s requirements on a sometimes as-needed and short-term basis.

In Chapman the court found the following proposition to be instructive:

As a general matter, an agency’s judgment as to whether a small business offeror will comply with the subcontracting limitation is a matter of responsibility, and the contractor’s actual compliance with the provision is a matter of contract administration. However, where a proposal, on its face, should lead an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation, we have considered this to be a matter of the proposal’s technical acceptability; a proposal that fails to conform to a material term and condition of the solicitation, such as the subcontracting limitation, is unacceptable and may not form the basis for an award.

63 Fed. Cl. at 527 (quoting Coffman Spec., Inc., B-284546, B-284546.2, 2000 WL 572693, at *4 (Comp. Gen. May 10, 2000). Chapman is distinguishable because the technical evaluation of proposals was undertaken after a solicitation. However, defendant’s point is well taken in the context of an agency’s determining whether it is reasonable to expect responsible small businesses to submit offers.

Defendant thus takes the position that it was appropriate for the Air Force to include the limitation on subcontracting in its preliminary analysis under FAR 19.502-2. According to defendant, the specific, as-needed tasks, although undefined, did not prevent the Air Force from properly performing this preliminary analysis because the nature of the specific work requirements was specified, and as-needed support could require the respondents to demonstrate that they themselves were capable of filling the entire range of requirements. The evaluators reasonably could glean this information under FAR 19.502-2(b) by having the respondents identify the skills of their employees and not their subcontractors.

The SSS bulleted a number of required skills spanning across “[a] broad range of technical levels across the following engineering and science fields” that respondents should demonstrate that they could provide: “Microbiology; Chemistry; Biology; Operations research; Geology; Aerospace engineering; Mechanical engineering; Electrical engineering; Physics; Civil Engineering; Computer Engineering; Nuclear Engineering; Computer Science; Materials Science.” AR at 30-31. The SSS also enumerated specific expertises that the NSS would need for the set-aside, such as expertise in “neutralization methodologies & tools for chemical compounds to include bulk neutralization techniques” and in “nuclear weapon design, analysis, effects, and assessments.” Id. at 30.

Defendant finds support in the record from a request for clarification from Contracting Officer Lindom sent to plaintiff on July 24, 2008, asking for the qualifications and a matrix that facilitated plaintiff’s response:

We request that you provide clarification of the information provided in the area of relevant experience and ability to perform a minimum of 50% of the effort. To help clarify the Statements of Capabilities submitted, request that you fill out the attached table detailing the qualifications, education, and experience of the personnel submitted in your Statement of Capabilities.

AR at 42. Plaintiff’s July 29, 2008 response stated that its original answer “meets the FAR 52.219-14 requirements.” Id. at 44. Plaintiff advised that, unless the Air Force is more specific about the task distribution in each mission area, it cannot answer the question more thoroughly. Id.

The Air Force provided plaintiff with a specific request. Plaintiff’s response, however, sought to substitute its concept of what the Air Force needed to satisfy the anticipated procurement, i.e., a breakdown by task, rather than the information specified. The manner in which the Air Force assesses its technical needs lies within its own discretionary domain. See E.W. Bliss Co. v. United States, 77 F.3d 445, 449 (Fed Cir. 1996) (stating, in the context of a negotiated procurement, that “the minutiae of the procurement process in such matters as technical ratings[ ], . . . involve discretionary determinations of procurement officials that a court will not second guess”).

Plaintiff continues that, even if the Air Force’s nonresponsibility determination was not premature and was properly made, Ms. Lindom should have referred plaintiff to the SBA for a possible COC, pursuant to FAR 19.601(d). In contrast, defendant characterizes the determination made by Ms. Lindom as a preliminary determination under subpart 19.5 of the FAR. FAR 19.601(d) provides that “[w]hen a solicitation requires a small business to adhere to the limitations on subcontracting, a contracting officer’s finding that a small business cannot comply with the limitation shall be treated as an element of responsibility and shall be subject to the COC process. . . .” (Emphasis added.) The first observation made when reviewing FAR 19.601 is that section (d) plainly refers to nonresponsibility determinations following the issuance of a solicitation for a small business concern. Moreover, when faced with a similar issue on appeal, the Federal Circuit made this distinction, finding that FAR 19.602-1 applies to an award that already has been set aside for a SBA program. Blue Dot Energy Co. v. United States, 179 Fed. App’x 40, 46 (Fed. Cir. 2006) (unpublished). This unpublished opinion is not cited as precedent; however, the Federal Circuit has indicated its view. See Fed. Cir. R. 32.1(d) (stating that “[t]he court may refer to a nonprecedential disposition in an opinion or order and may look to a nonprecedential disposition for guidance or persuasive reasoning, but will not give one of its own nonprecedential dispositions the effect of binding precedent”). The initial determination of whether to set aside the contract is made by the Air Force and not one that requires referral to the SBA. Id.

The facts and issues addressed in JT Construction, No. B-254257, 1993 WL 505803 (Comp. Gen. Dec. 6, 1993), provide a comparable situation. The potential bidder in JT Construction, a small disadvantaged business (“SDB”), responded to a synopsis advertised by the Air Force to determine whether two or more responsible SDBs would submit an offer for a contract to renovate military family housing units. The protestor argued that the requirements specified in the synopsis were “far in excess” of what is needed for the contracting officer to reasonably determine whether to set-aside the contract for a SDB. Id. at *2 (citing Defense Federal Acquisition Regulation Supplement 48 C.F.R. § 219.502-2-70 (1993)). The protestor also added that its response fully addressed the specified requirements; the Air Force’s determination that it would not receive offers from at least two responsible SDB concerns was “a premature impermissible determination of nonresponsibility without referral of the determination to the” SBA. Id.

The GAO responded that it generally views such determinations as a business judgment and within the contracting officer’s discretion. Id. Nevertheless, the contracting officer has a duty to make a reasonable effort in ascertaining information to assist in making this determination. The GAO found the inquiry made by the Air Force to be reasonable, considering that the Air Force is obligated to make an affirmative determination under the FAR and given that the contract was for a renovation project that had an estimated cost of $5 to $10 million. See id. at *3. The GAO also found, in response to the protestor’s assertion that it submitted sufficient evidence for the Air Force to assess its financial status, that the synopsis provided clear instructions on what information was required in order to assess responses. Finally, the GAO faulted the protestor for failing to distinguish between a determination of whether two or more responsible SDBs will submit an offer and one whereby an offeror is not considered responsible to perform a contract. Id. at *4 (citation omitted). In the former, the Air Force is making a pre-solicitation determination about the responsibility of potential bidders, whereas the latter determination precludes a potential awardee from receiving a contract. See id. It is the possible preclusion of a putative small business awardee for failure to satisfy the 50% subcontracting limitation that must be referred to the SBA.

The Air Force’s requirement in the SSS is that plaintiff “[c]learly demonstrate the ability as the prime to complete fifty percent of the effort for each mission area as well as all areas concurrently and demonstrate how the efforts not supported by the prime will be supported,” AR at 31, fairly can be characterized as an initial responsibility determination that does not trigger referral to the SBA. See Blue Dot, 179 Fed. App’x at 46 (citing JT Constr. Co., B-254257, 1993 WL 505803, at *4). 19/ The applicable provision, FAR 19.502-2(b), inherently includes an initial responsibility determination, as the regulation provides that “[t]he contracting officer shall set aside any acquisition over $100,000 for small business participation when there is a reasonable expectation that [] offers will be obtained from at least two responsible small business concerns . . . .” (emphasis added). As defendant emphasizes, plaintiff has not explained why a preliminary determination under FAR 52.219- 14 is distinguishable from the other preliminary determinations that the Air Force has the discretionary authority to make under FAR 19.502-2(b).

Plaintiff’s next criticism of the Air Force’s use of the 50% subcontracting limitation in the SSS is that the NSS’s requirements are too undefined for proper application of the rule. The parties do not dispute that the Air Force’s requirements were undefined. However, the specific areas of expertise were listed, see AR at 30-31, and the Air Force did not unreasonably seek respondents that could supply them.

If plaintiff had identified its employees, as opposed to those of its subcontractor, defendant maintains that undefined tasks would not preclude the Air Force from evaluating the capabilities of the small business on a reasonable basis. Given that the Air Force was required to make an affirmative determination under FAR 19.502-2(b), the reasonableness of an inquiry made during the market-research stage of a procurement process should be measured against the nature of the procurement. See JT Constr., No. B-254257, 1993 WL 505803, at *3. Given that the proposed contract, estimated to be a $36 million effort over a five-year period, was seeking technical support for the Air Force’s counterproliferation and nuclear weapons efforts, see AR at 26, 31, the Air Force could “reasonably request the scope and type of information requested in the” SSS, JT Constr., No. B-254257, 1993 WL 505803, at *3.

Plaintiff’s final argument on the 50% requirement, and its bearing on the reasonableness of the D & F, is that the Air Force lacked a rational basis for concluding that plaintiff could not meet this 50% subcontracting requirement. Plaintiff maintains that it provided sufficient information for the Air Force reasonably to conclude that plaintiff could comply with the subcontracting limitation by: 1) its past performance of a 51% effort over the last five years of the ARSS contract (Pl.’s Br. filed May 4, 2009, at 13 citing AR at 115); 2) a table demonstrating its area coverage capability (id. citing AR at 117); 3) the resumes of fifty-nine individuals who would be able to provide services under the NSS contract, fourteen of whom are plaintiff’s employees (id. at 14 citing AR at 124-255); and 4) a matrix evidencing that twelve of plaintiff’s employees possess skills applicable to more than one mission area (id. citing AR at 120-21). Plaintiff explains that it did not respond to Ms. Lindom’s July 24, 2008 e-mail because plaintiff already had provided the requested information in its Statement of Capabilities and could not offer more specific information without a specific task distribution.

Defendant undermines plaintiff’s position with two salient points. First, defendant charges that plaintiff failed to establish it could satisfy the NSS’s requirements through its own fourteen employees, and not through plaintiff’s subcontractors. Second, defendant reviews all of the resumes of the fourteen employees submitted by plaintiff, highlighting the bases upon which the NSS concluded it did not have a reasonable expectation that these employees could satisfy 50% of the contract effort. See Def.’s Br. filed May 11, 2009, at 8- 10.

Defendant undermines plaintiff’s position with two salient points. First, defendant charges that plaintiff failed to establish it could satisfy the NSS’s requirements through its own fourteen employees, and not through plaintiff’s subcontractors. Second, defendant reviews all of the resumes of the fourteen employees submitted by plaintiff, highlighting the bases upon which the NSS concluded it did not have a reasonable expectation that these employees could satisfy 50% of the contract effort. See Def.’s Br. filed May 11, 2009, at 8- 10.

Plaintiff’s argument would be, and was, much more convincing when review of the reasonableness of the Air Force’s decision was based on the D & F alone at the time defendant was arguing lack of jurisdiction and mootness. And, although the administrative record reveals that the Air Force reluctantly performed the required analysis under FAR 19.502-2(b), and only did so after plaintiff forced the issue, the FAR does not require the Air Force to negate evidence of a predisposition. The Air Force was required to allow plaintiff a full opportunity to make its case during the market-research phase of this procurement. The court has read the three technical evaluations of the three respondents’ Statements of Capabilities. The evaluations at this early phase are more detailed, coherent, and explanatory than this court has seen in reviewing typical evaluations of technical proposals submitted in response to solicitations for competitive procurements. Plaintiff’s submission was treated fairly. See, e.g., Centex Corp. v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005) (stating that every contract includes the implied covenant of good faith and fair dealing).

Plaintiff has proved neither an unreasonable agency decision nor a clear and prejudicial violation of an applicable procurement regulation.  (Rhinocorps Ltd. Co., v. U. S., No. 08-410C, June 4, 2009)  (pdf)

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¹  Sources Sought Synopsis

The Court therefore finds no basis in the administrative record to find that the contracting officer acted arbitrarily or capriciously when issuing the Solicitation. As stated, the record demonstrates that the contracting officer had multiple reasons for her decision to issue the Solicitation as a small business set-aside. First, the procurement history shows that the expectation of at least two responsive small business bidders was reasonable. Second, the contracting officer conducted sufficient market research and acquisition planning before issuing the Solicitation as a small business set-aside. Additionally, there was nothing in the record to indicate the attempts were made arbitrarily or capriciously. The decision to set-aside the Solicitation for small business follows the standard set forth in FAR part 19, the regulation provision that governs small business set-asides in procurements such as the one subject to this challenge. 48 C.F.R. §19.502-2(b). For these reasons, the Court finds HRSA’s decision to make the Solicitation a small business set-aside to be rational. Accordingly, McKing fails to meet its burden of showing that HRSA had no rational basis for its decision.  (McKing Consulting Corporation, v. U. S., 07-17C, Reissued October 12, 2007) (pdf)

In sum, the alternative scenario proposed by Greenleaf runs counter to the normal timing of responsibility determinations, runs counter to the agency’s application of the RFP in this case, and would lead to the anomalous result that a determination of adequate competition must be revisited over time to account for the vagaries of a bidders’ circumstances. We therefore conclude that reversal of the decision to cascade was correct. The adequacy of competition at the small business tier had been sufficiently addressed. The fact that * * * withdrew, leaving Chapman as the lone small business offeror, did not compel a cascade to the unrestricted tier. While Greenleaf has established prejudice, it fails on the merits of its argument that the agency violated the terms of the RFP. (Greenleaf Construction, Co., Inc., v. U. S., and Chapman Law Firm Co., No. 05-703C, September 13, 2005) (pdf)

Plaintiff’s argument that the USMC failed to perform an analysis of whether there were two responsible small business concerns that would submit offers at fair market prices is wholly without merit. This assertion is not supported by the record. On the contrary, the record indicates that the USMC went to great lengths to publicize the solicitations and to ascertain small business interest and capabilities. The contracting officer did not abuse his discretion in deciding not to set aside the two contracts exclusively for small business because his decision was based on a rational assessment of the scope and complexities of the solicitations, the prior procurement history, input obtained from industry and consultations with the SBA and the USMC’s small business specialist.  (MCS Management, Inc., v. U.S., No. 00-639C, January 18, 2001)