How Much Is Enough for Small Business Set-Asides?

Richard D. Lieberman

 

June 2007

 

Federal Acquisition Regulation (“FAR”) 19.502-2 requires that procurements over $100,000 be set-aside exclusively for small business when there is a reasonable expectation that offers will be received from at least two responsible small businesses and award will be made at a fair market price. This is known as the “Rule of 2.” The question is how much must a contracting officer do in order to determine that there are two or more such small businesses? In ViroMed Labs., B-298931, Dec. 20, 2006, 2006 WL 3904357, the Government Accountability Office (“GAO”) explained that the actions must be reasonable. In ViroMed, the contracting officer posted a “sources sought” notice on the FedBizOpps website for HIV testing and reporting services, explaining in detail what was needed. Nine of the respondents were small businesses, and provided the contracting officer with information regarding their capabilities. The contracting officer conducted additional research and queried all respondents regarding their capability to perform the information technology portion of the work.

Based on the information she gathered, the contracting officer concluded there were at least three small businesses capable of performing the solicitation’s requirements. The contracting officer further concluded that since her research showed that HIV testing was offered and sold competitively in substantial quantities in the commercial marketplace, there was a reasonable expectation of award at a fair market price. The contracting officer set aside the requirement, and ViroMed argued that the market research was inadequate, and that rather than verifying the accuracy of the sources’ claims regarding their capabilities, the contracting officer simply accepted their self-serving assertions.

The GAO explained that the use of any particular method of assessing the availability of small businesses is not required so long as the agency conducts reasonable efforts to locate responsible small business competitors. Further, the decision whether to set aside a procurement may be based on prior procurement history, recommendations of appropriate small business specialists, and market surveys that include responses to sources sought announcements. In denying ViroMed’s protest, the GAO stated that in “making set-aside decisions, agencies need not make either actual determinations of responsibility or decisions tantamount to determinations of responsibility, however, rather, they need only make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract.”

TIPS: (1) For procurements over $100,000, an agency must set aside the procurement for small business where there is a reasonable expectation that offers will be received from at least two responsible small business concerns and that award will be made at a fair market price. If the agency refuses to set it aside, a small business should consider a bid protest. (2) Only reasonable assessment (i.e. business judgment) of the capabilities of the small businesses is necessary; an agency does not need to make an actual responsibility determination.

Richard D. Lieberman (email: rlieberman@mshpc.com).
Originally appeared in the McCarthy, Sweeney & Harkaway, PC Government Contracts Newsletter dated March 1, 2007.