Petrillo: Keep watch on ‘rule of two’

A recent ruling by GAO could have far-reaching ramifications for IDIQ contracts

In a ruling with potentially broad effects, the Government Accountability Office has held that the requirements for small-business set-asides — including the so-called “rule of two” — apply to multiple-award task- and delivery-order contracts. The case resulted from a multiple-award, indefinite-delivery, indefinite-quantity contract vehicle for training and simulation awarded by the Naval Air Systems Command (Navair).

In my Sept. 29 column, I discussed a law that recently permitted protests to GAO, on any ground, for task- and delivery-order awards expected to exceed $10 million. GAO’s ruling in a protest by Delex Systems appears to be the first decision that enforces the new law. 

The lack of small-business participation has been a problem with these umbrella contract vehicles. Because such contracts often have broad, general statements of work, large businesses win most awards. A small business might excel in some areas but most can’t match the broader experience of larger competitors in fighting for an award that requires a wide range of capabilities. And without a place on the contract, a small business gets frozen out of the ensuing orders.  

Agencies have tried different cures. One choice is to create parallel contract vehicles, one open to all competitors and another set aside for small businesses only. That’s the path the General Services Administration chose for the Alliant program. Another method is to set aside a specific number of contract awards for small businesses, which can then compete for orders.

The Navair solicitation advised offerors that the Navy could solicit individual delivery orders on a set-aside basis, restricting them to small-business awardees. Delex was one of four original small business contractors. Over time, two of them grew to be large companies, leaving only two small businesses. When the Navy didn’t set aside a specific order for small-business concerns, Delex protested. 

The gateway question for GAO was whether SBA’s rule of two applied to the order. SBA rules call for setting procurement aside for small business when there is a reasonable expectation of getting proposals from at least two qualified small businesses. The Navy said this rule didn’t apply to the award of a task or delivery order. Delex disagreed. SBA, asked by GAO for input, supported the protester.  
GAO ruled for SBA and the protester. GAO held, for the first time, that the rule of two applies to competitions for task and delivery orders. Turning to the facts of the case, GAO decided that the contracting officer wrongly concluded that she wouldn’t get two proposals from the small-business contractors.

How far will this ruling go?  The Delex decision suggests that the rule of two trumps requirements to give all contractors an opportunity to submit an offer. If so, the ruling will apply even if the solicitation doesn’t announce that some orders might be set aside for small businesses. However, the new ruling might not extend to GSA schedule contracts. Those regulations expressly state that the small-business set-aside rules don’t apply to schedule orders.  Stay tuned for more developments.

Petrillo ( is a lawyer at Washington law firm Petrillo and Powell.


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