Nadler: No small-biz panacea

Cascading procurements, designed to help, can have the opposite effect

In response to widespread criticism about the government's failure to meet small-business goals, some agencies are turning to a controversial practice known as cascading procurements.

Using this technique, agencies evaluate offers in descending order of legal preference, starting with small and disadvantaged

firms and moving to larger and less protected categories of companies. Typically, large firms are at the bottom of the list. Agencies move down the list only if they don't make an award to a bidder in the previous category.

The obvious intent of cascading is to increase small-business awards. However, under the current system, it can have the opposite effect and become detrimental to small firms.

Some agencies use cascading as a shortcut to bypass procedures for making set-aside decisions. Those procedures protect all potential bidders, including companies in the preferred classes.

Most notably, agencies rarely perform market analyses to determine whether contract requirements appropriately match the preference categories.

Some agencies use the bid prices in procurement responses only to determine whether a small business can offer fair market prices. However, agencies should establish the fair market price before a requirement is set aside.

A recent U.S. Court of Federal Claims decision raised similar concerns. In some cases, agencies look only at the prices large businesses submit, but they might not be representative of market prices.

Another problem is that agencies often require at least two bidders in each category, while the Federal Acquisition Regulation requires them to make an award even if only one acceptable small-business offer exists.

In the 8(a) context, rules require agencies and the Small Business Administration to jointly determine whether a procurement is appropriate for the program.

This analysis requires government agencies to determine if a potential 8(a) firm matches the contract's requirements. Without this analysis, the bidders in the preferred class may have a lower chance of winning because they are not well-suited to the contract.

Careful presolicitation analyses ensure that contractors in the preferred categories would have a chance of receiving an award and would be able to successfully perform the contract if they win it.

Small businesses should not have to waste bid and proposal resources chasing contracts they don't have a reasonable chance of winning.

Likewise, small businesses should not be set up to fail on contracts beyond their capabilities.

Moreover, an award made to an 8(a) firm in a cascading procurement does not necessarily qualify it as an 8(a) award under SBA's program because the latter has specific regulatory procedures.

Aside from whether such awards should count toward an agency's 8(a) goals, the issue is significant because it affects the procedures for terminating and financing the contract and subcontracts.

The Office of Federal Procurement Policy should provide guidance on the use of cascading procurements to ensure that the practice complies with applicable law and is consistent with the goals of the government's socioeconomic programs.

Nadler is a partner at the law firm Dickstein Shapiro Morin and Oshinsky, where he specializes in government contract matters. He can be reached at (202) 828-2281 or NadlerD@dsmo.com.

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