Ruling clouds future for buyers

Experts debate the potential impact of a GAO decision on small-business contracting

The Government Accountability Office’s recent ruling that agencies must set aside some task orders for small businesses could give those firms a new advantage, some observers say. But others say it remains unclear how much the ruling will change how agencies do business.

GAO sustained a protest by Delex Systems, which argued that the Navy should have limited competition for an aviation training products delivery order to small businesses because at least two small firms could have offered bids.

The Navy solicited bids through its Training Systems Contract II, a multiple-award, indefinite-delivery, indefinite-quantity (IDIQ) contract, which features two small businesses and six large businesses.

Under the rule of two, the Federal Acquisition Regulation requires agencies to set aside any order of more than $100,000 if the agency finds that at least two qualified small businesses could enter bids. In the Delex case, the Navy argued that the rule applies to contracts, not task orders. GAO’s ruling marks the first time the rule of two has been interpreted to apply to task and delivery orders.

“GAO tipped the playing field in favor of small-business contract holders,” said Alan Chvotkin, executive vice president and counsel at the Professional Services Council. The ruling significantly changes the landscape for agencies’ and contractors’ acquisition strategies, especially for multiple-award contracts with a mix of small and large companies, he added.

As a result of GAO’s decision, program managers and contracting officers will likely give more weight to small-business set-asides in their initial acquisition strategies, said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources.

“Small businesses should capitalize on this opportunity,” said Andy McCann, vice president and geographic sales leader for EDS’ U.S. Government and Public Sector business.

A mixed verdict
However, at this point, many companies are trying to understand how the ruling will affect them. An executive at a major systems integrator said large companies were not happy with the ruling, but the outcome depends heavily on how a contracting officer interprets GAO’s decision. Integrators might need to adopt new bidding and partnership strategies, especially on multiple-award contracts that feature large and small businesses.

Likewise, the ruling could cause small companies to seek new strategies for working with integrators, McCann said.

“This ruling creates an incentive for small businesses to strive to be selected on IDIQ contract vehicles or to team with a large integrator on an IDIQ contract,” McCann said. It might also encourage companies to put a greater emphasis on their mentor/protégé programs.

“Through our small-business program, EDS has established and maintained strong relationships with small businesses and has introduced them to new business opportunities with EDS,” he said.

Other experts say GAO’s decision will not give small companies any new advantages. “On the surface, this may seem to be a benefit to small businesses, but the price may be too high,” said Guy Timberlake, chief visionary and chief executive officer at the American Small Business Coalition. Timberlake said the decision might strain the already tense relationship between agencies and small businesses.

John Howell, a partner at law firm Sullivan and Worcester, said any time GAO or Congress institutes a new requirement, agencies push back, straining their relationships with small businesses.

Officials and experts agree that the ruling could widen the rift between government and industry. Already, agencies and firms are slow to trust one another. Some experts speculated that agencies now might assume that contractors plan to protest losses and even factor the costs of pursuing those protests into their bids, raising the costs to government.

The cost of doing business
Lee Harvey, the Army’s deputy program executive officer for enterprise information systems, said fewer companies protested award decisions  a decade ago because they wanted to avoid making a fuss and preferred to maintain good relationships with the government. However, today’s larger orders make people want to protest, he said. Companies have more at stake.

Companies that don’t file frequent protests might still be tarnished by agencies’ perception that contractors in general do so, Timberlake said.

“The business of doing business with the government today is so overwhelmingly out of focus that, in my opinion, we’re no longer looking at the true picture of industry and government partnering,” Timberlake said.

Earlier this year, Congress gave GAO the authority to hear task-order protests because they have become so complex and widely used that they are now the equivalent of what full contracts are, experts say. Agencies have been using task orders for more than half of their procurements in recent years, compared with 14 percent in 1990. In the 1990s, the government viewed task orders as distinct from contracts and put those orders outside GAO’s jurisdiction.

GAO will keep its new authority to review task-order protests for three years. Legislators plan to evaluate the effects before then and make any necessary changes.

In the meantime, GAO’s recent ruling could change how agencies view orders and contracts.

“More of these multiple-award opportunities might be issued as full-and-open [competitions] with no set-aside components, creating a more prohibitive competition environment for the average small business,” Timberlake said.

Harvey recently predicted that agencies would take that course in the near future. He said agencies, particularly those under pressure to buy what they need quickly, might resort to the Big Bang theory of procurement: one competition for one big contract.

Bjorklund agreed that agencies will likely reassess the use of multiple-award contracts in light of GAO’s Delex ruling. They will probably ask themselves why they should go through the hassle of awarding an IDIQ and then go through another competition for task orders, he said.

However, some experts say GAO’s decision won’t affect multiple-award contracts that separate small and large businesses.

The ruling will have little effect on NASA’s Solutions for Enterprisewide Procurement, a governmentwide acquisition contract, said Joanne Woytek, NASA’s SEWP program manager. SEWP is organized into four groups of multiple-award contracts. Two are for small businesses, with one of the two set-asides for small companies owned by service-disabled veterans. The other two are primarily for large businesses, though a few small businesses are in the mix.

Woytek said the ruling might affect a few orders in the groups that lack set-asides, but the small companies in those groups are generally winning orders when they submit a reasonable bid.

“We have always encouraged contracting officers to provide a small-business preference, and now it will be more targeted if two of the small companies in the open groups can and want to provide a reasonable quote,” she said.

Whether or not the ruling offers an advantage to small businesses, it has left the contracting community in limbo.

“The decision changes the rules of engagement” and leaves new questions unanswered, Chvotkin said. “It changes procurements midstream.” 

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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