Allen and Alston: Delex case won’t hurt schedules

GAO decision shows advantages of schedules program.

GSA is small biz-friendly

Although the set-aside provisions of FAR Part 19 do not apply to orders against the schedule, FAR 8.4 does describe techniques that agencies should follow to encourage small-business contracting. For example, agencies can take credit for orders placed with small businesses. Agencies can also consider size status in identifying schedule contractors for placement of orders or schedules competitions (see FAR 8.405-5). These techniques have proven useful in directing contracts to small businesses. The General Service Administration schedules historically meet or outperform governmentwide goals for small-business contracting. Typically 75 percent of contracts and 33 percent of dollars go to small businesses.

The Government Accountability Office recently issued a protest decision that has sent supporters of the General Service Administration schedules racing for their copies of the Federal Acquisition Regulation and other guidance. (See, Delex Systems Inc., B-400403, Oct. 8).

Although GAO’s decision in the Delex case is noteworthy, it is important to know that it does not have a direct effect on GSA schedule orders. If anything, a key lesson to be learned is why GSA schedule contracts can sometimes be a better alternative than agency multiple-award contracts.

In Delex, GAO sustained a protest brought by the company that claimed the Navy failed to comply with the set-aside provisions of FAR 19.502-2(b) when it issued an unrestricted solicitation for a delivery order under a Navy multiagency contract (MAC). The FAR 19 provisions state that contracts must be set aside for small businesses when there is a reasonable expectation that at least two responsible small businesses can perform the work contemplated. This is commonly known as the “rule of two.”

Because the underlying Navy MAC, the Training Systems Contract II (TSC II), had been awarded to four small firms and four large businesses, it could reasonably be assumed, GAO concluded, that the Navy would receive at least two offers from qualified small businesses. As such, the Navy should have set aside the task order for small businesses.

FAR 19.502-2(b) provides that the rule of two applies to acquisitions worth more than $100,000. In GAO’s view, the essential legal question in this protest was whether the rule applies to individually competed tasks or delivery orders under multiple-award contracts. GAO concluded that for purposes of the rule of two, multiple-award task and delivery orders are acquisitions.

We do not believe that GAO could logically reach the same conclusion for orders against the GSA schedule for several reasons. First, the FAR is clear in stating that Part 19 does not apply to the GSA schedules. The only exception is the Part 19 requirement that agencies must justify a bundled procurement. Specifically, 8.404(a) states:

“...Parts 13 (except 13.303-2(c)(3)), 14, 15, and 19 (except for the requirement at 19.202-1(e)(1)(iii)) do not apply to Blanket Purchase Agreements or orders placed against Federal Supply Schedules contracts.”

This language is similar but notably different from FAR provisions applicable to orders against multiple-award schedule (MAS) contracts awarded pursuant to FAR Part 16. Note that 16.505(b) provides in part that “...The competition requirements in Part 6 and the policies in Subpart 15.3 do not apply to the ordering process.” There is no specific exemption for Part 19.

Secondly, GAO has previously considered whether orders against the GSA schedule are subject to statutory and regulatory requirements associated with a competitive acquisition and concluded that they are not. In Vion Corp., B- 283804.2, issued Jan. 24, 2000, GAO stated:

“Agencies properly may place an order under the Federal Supply Schedules without meeting any of the usual statutory and regulatory requirements associated with conducting a competitive procurement, because the award of an FSS delivery order, by statutory definition, satisfies the requirements for full and open competition. 41 U.S.C.  259 (b)(3). When awarding an FSS delivery order, agencies instead are governed by FAR subpart 8.4, which sets forth the requirements for issuing an FSS delivery order.”

Although it is clear from the FAR that the rule of two does not apply to GSA schedule task orders, some in the schedules community nevertheless expressed concern that the ruling could lead to a new interpretation of set-aside rules.

Contributing to that concern was the recent FitNet protest and accompanying petition to the Office of Federal Procurement Policy. The FitNet actions were direct attempts to set aside schedule pur hase orders under the $100,000 Simplified Acquisition Threshold for small businesses. Although those efforts failed, the combination of those actions along with the Delex protest have led schedule proponents to wonder whether GAO or a court could rule that at least some schedule orders could become set-asides for small businesses. GAO officials have discussed the possibility in open forums, adding to the speculation.

The FAR 19 exclusions seem clear enough, but what about purchases under the simplified threshold? Here again, a good case can be made that schedule orders were never intended to be affected.

Before the Federal Acquisition Streamlining Act (FASA) the threshold was $25,000. Although the schedules program was smaller, no orders were ever set aside for small businesses. As is the case today, certain schedules are set aside for small firms. However,  on all other schedules, firms of any size were, and are, eligible to receive orders.

When FASA raised the threshold to $100,000, schedule companies became concerned that the new limit would result in task orders being set aside. The Coalition for Government Procurement took these concerns to Congress along with suggested language clarifying congressional intent.

In meetings with the staff of the Senate Governmental Affairs Committee, one of the two primary congressional committees of jurisdiction, it was clear that the authors of FASA did not intend to create a new set-aside where none currently existed. Simply put, there was no intent to set aside GSA MAS orders worth less than $100,000 for small firms. Although this explanation of intent was not added to the text of the legislation, it was included in the report accompanying the final measure.

The language is essentially identical to the phrasing used in FAR 19 that exempts schedule purchases from the rule of two. The intent is clear: Schedule orders worth less than $100,000 were never intended to be set aside for small businesses.

However, FASA is now 14 years old, and few people remember these discussions or know enough to look at the statute’s report language. Such language is routinely used by GAO and the courts to discern congressional intent. Should GAO or another court of jurisdiction consider a schedule set-aside case in the future, this little-known but important passage should be given considerable weight.

This creates a small but potentially important interpretation precedent.

Another point unintentionally made by this case is that MACs, the flavor of the month recently among some government contracting officials, might not always be a better alternative than GSA MAS contracts.
Many agencies set up MACs because they felt they could get a better deal and have more control over the acquisition process. In this case, however, the Navy would have saved considerable time, money and frustration using the GSA schedule. Instead of defending its actions with GAO, it would have been able to implement the training systems simulation solution.

Too frequently, GSA MAS contracts get lumped in with other MACs and governmentwide acquisition contracts. The legislative and regulatory history shows, however, that schedule contracts are unique. It is important to understand and remember that, whether you’re considering new legal precedents or contemplating an acquisition. 

Allen is president of the Coalition for Government Procurement. Alston is general counsel for the Washington Management Group.


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