Court of Federal Claims (COFC) Finds in Favor of the Small Business Community

Note from John: This is potentially huge news for the small business community. In recent years, the government has often put new or existing requirements directly onto a multiple-award large business IDIQ contract vehicle without doing an analysis to see if there are two viable small business entities capable of providing those services. This COFC finding mandates that the government do a Rule of Two analysis prior to moving the requirement onto the large business IDIQ. This will provide more opportunities for us…possibly many more. 

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This is a guest post by Nicole Pottroff of Koprince Law, LLC.

The United States Court of Federal Claims (COFC) has ruled that an agency has to conduct a small business Rule of Two analysis before it can use an existing multiple-award indefinite delivery indefinite quantity (MAIDIQ) contract vehicle to procure services.  This is a landmark decision, given that GSA Schedule contracts are exempt from the Rule of Two. 

The COFC’s decision in Tolliver Grp., Inc. v. United States, No. 20-1108C, 2020 WL 7022493 (Fed. Cl. Nov. 30, 2020), arose out of the Department of the Army’s decision to cancel two General Services Administration (GSA) Federal Supply Schedule (FSS) support staffing solicitations, which were 100% set aside for service-disabled veteran owned small businesses (SDVOSB). The solicitations sought fire support specialists training services for the Fires Center of Excellence field artillery school at Fort Sill. The Army had previously procured these services through a long-term omnibus MAIDIQ contract.

The Army first awarded the solicitations to two SDVOSBs. But it subsequently cancelled the solicitations and the awards for the purpose of transferring the work to an existing MAIDIQ. According to the Army, this Training Management Support (TMS) MAIDIQ would “provide a potentially better procurement vehicle for this requirement” than the GSA FSS contract.

Two SDVOSBs brought this lawsuit under the Tucker Act, arguing that the Army’s actions violated two laws: (1) the Administrative Procedure Act (more on that issue in an upcoming blog); and (2) the Rule of Two (the subject of this blog). Specifically, the plaintiffs argued that the Army violated the Rule of Two by “mov[ing] the unchanged requirements to the New Ft. Sill IDIQ, where only large businesses are eligible for award[.]”

The court explained:

The Rule of Two . . . is straightforward, and provides that the contracting officer shall 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) Award will be made at fair market prices.

According to the court, the Army did not dispute that there were “at least two responsible business concerns capable of performing the work at fair market prices, or that, in general, the Rule of Two is mandatory.” The Army, instead, argued that the Small Business Act and the FAR gave it the discretion “to make use of a multi-award contract without first conducting a rule of two analysis to determine whether the task order should be set aside for small business.” The Army cited the following statutory language:

Federal agencies may, at their discretion:

(1) set aside part or parts of a multiple award contract for small business concerns . . . ;

(2) notwithstanding the fair opportunity requirements under section 2304c(b) of title 10 and section 4106(c) of title 41, set aside orders placed against multiple award contracts for small business concerns. . .; and

(3) reserve 1 or more contract awards for small business concerns under full and open multiple award procurements . . . .

The Army also cited the FAR clause for “[p]artial set-asides of multiple-award contracts[,]” which similarly says that “contracting officers may, at their discretion, set aside a portion or portions of a multiple-award contract” under certain circumstances.

Based on these sources, the Army argued that, since it “exercised its discretion not to set-aside any portion of the TMS MAIDIQ scope or any of the TMS MAIDIQ‘s contract awards for small business,” it could now “utilize the TMS MAIDIQ for any acquisition – and avoid the Rule of Two – so long as the contemplated scope of work is within the TMS MAIDIQ’s scope.”

But the court rejected this “sweeping inference.” The FAR and Small Business Act provisions the Army cited, instead, tell the agency “how a multiple award contract may be structured or how a task order competition under a multiple award contract may be competed.” They do not address whether the agency may ignore the Rule of Two simply because the agency prefers to use a MAIDIQ that already has been awarded. As the court explained:

[T]he fact that an agency has the discretion to partially set-aside “a portion” of a multiple award contract for small business does not lead to the ineluctable conclusion that having decided not to engage in a partial set-aside, an agency may thereafter dispense with the Rule of Two. The latter does not follow from the former. To the contrary, the grant of discretion applies even where the Rule of Two does not require a set-aside, but the grant of discretion does not somehow, by negative implication, eliminate the Rule of Two requirement.

As such, the court concluded that “[t]he Rule of Two unambiguously applies to ‘any’ ‘acquisition,’ FAR 19.502-2, without any loophole for MAIDIQ task orders.” The court noted, “where the FAR intends to make the Rule of Two entirely inapplicable to the selection of a particular procurement vehicle, the FAR knows how to do so,” and it cited FAR subpart 8.4, which expressly exempts FAR Part 8 FSS procurements from the Rule of Two requirements. The indefinite delivery contract regulations in FAR subpart 16.5, however, do no such thing.

Because there was no legal exemption from the Rule of Two for MAIDIQs, the court turned to the specific question of “whether the agency has any obligation to apply the Rule of Two to a particular scope of work that is covered by the scope of an already-issued multiple-award contract[]” before it can leverage the existing MAIDIQ.

To this, the court answered “yes.” Interestingly enough, its decision was actually based on a GAO decision, LBM, Inc., B-290682, where GAO found that the “Army violated FAR § 19.502-2(b) when [it] did not consider continuing to acquire the Fort Polk motor pool services under a total small business set-aside[.]” GAO’s decision there–and therefore, the court’s decision here–centered around the definition of an “acquisition.” The FAR defines an acquisition as:

the acquiring by contract with appropriated funds of supplies or services (including construction) by and for the use of the Federal Government through purchase or lease, whether the supplies or services are already in existence or must be created, developed, demonstrated, and evaluated. Acquisition begins at the point when agency needs are established and includes the description of requirements to satisfy agency needs, solicitation and selection of sources, award of contracts, contract financing, contract performance, contract administration, and those technical and management functions directly related to the process of fulfilling agency needs by contract.

According to GAO, the purchasing of services with appropriated funds in LBM was an acquisition, “regardless of the fact that the agency anticipated acquiring those services through their transfer to the [IDIQ] scope of work.” GAO said, “[h]ad the agency complied with the requirements of [the Rule of Two], it might have concluded that the [IDIQ] contracts were not the appropriate vehicle for this acquisition.” Thus, GAO concluded that “the agency’s intent to use a task order under [a multiple award contract] as the contract vehicle did not eliminate the legal requirement that the agency undertake that analysis.”

The COFC followed suit, stating:

The bottom line from this Court’s perspective is that the cancelled solicitations at issue here are themselves acquisitions. The government’s identification of a need – of a scope of work – that it must procure itself begins an acquisition. Accordingly, we view the identification of the continued need for [the two solicitations’] requirements as either part of in-process acquisition or a new acquisition.

According to the court, either way the acquisition is viewed, the Rule of Two applies. The court said, even if the Army had “satisfied its small business set aside obligations with respect to the TMS MAIDIQ acquisition in 2018,” that did not mean that it also satisfied those obligations with respect to the acquisitions of the requirements set forth in the 2020 solicitations. The court said:

In sum, the government’s failure to apply the Rule of Two prior to deciding to cancel the solicitations at issue is fatal to that decision, whether because that failure undermines the central rationale of the cancellation decision or whether because the decision to move the work to the TMS MAIDIQ prior to conducting a Rule of Two analysis constitutes an independent violation of law.

In the end, the COFC enjoined the agency from cancelling the solicitations and transitioning the work to the MAIDIQ (or to any other procurement vehicle) without first complying with the Rule of Two.

This is truly a landmark decision by the COFC–with the potential to affect a multitude of federal contracts. Especially of late, we have seen many federal agencies attempt to shuffle new requirements to existing IDIQs, often to simplify their acquisition procedures or avoid certain rules or litigation. At least now, those agencies will not be able to escape the small business Rule of Two in doing so.

This post was originally published on the SmallGovCon blog at https://smallgovcon.com/u-s-court-of-federal-claims/cofc-says-agency-must-consider-rule-of-two-before-using-multiple-award-idiq-contract-vehicle/ and was reprinted with permission.


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