On November 30, 2020, the U.S. Court of Federal Claims (COFC) issued a decision that supported the Small Business Administration’s position regarding the Rule of Two analysis requirements for government acquisitions.[1] The central question surrounding the case was whether the U.S. Army could cancel a Federal Acquisition Regulation (FAR) Part 8 service-disabled veteran-owned small business (SDVOSB) set-aside procurement under the General Services Administration’s Federal Supply Schedule (FSS) and move the requirement to a multiple-award indefinite-delivery, indefinite-quantity (MAIDIQ) contract vehicle that the plaintiff, The Tolliver Group, Inc. (Tolliver), did not hold. In its protest, Tolliver argued, in part, that the Army’s actions violated the Rule of Two because the agency was required to determine whether two or more small businesses were capable of performing the requirement prior to choosing to put the procurement on the MAIDIQ contract. The COFC’s decision confirms that the Rule of Two analysis applies before an agency elects to procure a requirement from a multiple-award contract (MAC) vehicle under FAR Part 16.5.
The Rule of Two requires contracting officers to set aside any acquisition over the simplified acquisition threshold 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) the award will be made at fair market prices. In Tolliver, the Army argued that a Rule of Two analysis was not required because—according the Small Business Jobs Act, as implemented in 15 U.S.C. § 644(r)—federal agencies have the discretion to issue MACs without first conducting a Rule of Two analysis to determine whether it should be set aside for small businesses. As the COFC explained, what the Army essentially argued was that having exercised its discretion not to set aside any portion of the subject MAIDIQ vehicle or any of the MAIDIQ contract awards for small business, the agency could utilize the MAIDIQ vehicle for any acquisition—and avoid the Rule of Two—so long as the contemplated scope of work was within the MAIDIQ contract’s scope. The COFC rejected this argument, stating that all acquisitions require a Rule of Two analysis (except that, pursuant to the FAR, there is no requirement for an agency to apply the Rule of Two prior to an agency electing to use a FAR Part 8 FSS procurement).
In analyzing the term “discretion” found in 15 U.S.C. § 644(r), the COFC noted that the regulation only tells agencies how MACs can be structured and competed. It does not, however, give an agency carte blanche to avoid the Rule of Two because it prefers one particular acquisition vehicle over another, as was done in this case. In other words, just because the Army may have satisfied its small business set-aside obligations with respect to the subject MAIDIQ vehicle when it was initially awarded, this does not mean the Army also satisfied its set-aside obligations with respect to the separate acquisitions that were the subject of Tolliver’s protest. Simply put, the COFC held that the Rule of Two applies to all “acquisitions” including the agency’s decision in Tolliver, whether framed as a decision to cancel the FAR Part 8 procurement or a decision to issue a new solicitation for the subject services.
The Rule of Two was created to assist small businesses in procuring government contracts. Without it, procurements, such as the one in question in this case, would be out of reach for many otherwise qualified small business vendors that rely on them to survive. By clarifying the scope of that rule, the COFC has provided more certainty to small businesses and has created a roadmap for such concerns wishing to challenge an agency’s adherence to the Rule of Two.
If you have any questions regarding the Rule of Two, please contact Sam Finnerty or another member of PilieroMazza’s Government Contracts Group.
[1] See Tolliver Grp., Inc. v. United States, No. 20-1108C (Fed. Cl. Nov. 30, 2020).
