Ruling buttresses small businesses

Ed Driscoll, president and chiefexecutive officer of DelexSystems Inc., was forced into anawkward position last spring. His customerof 40 years, the Navy, was disregardingsmall-business acquisitionrules. Delex risked losing a lot of potentialbusiness if the problem continued.On a $75 million contract, the Navydecided against setting aside orders forsmall businesses as acquisition rulesrequire when at least two small companiescan handle the work and can offerreasonable prices.Driscoll, a former Navy officer, hadinvested millions of dollars just to earna spot to compete for the orders on theNavy's Training Systems Contract II.Given the size of his investment andthe contract, he had to consider aprotest. At the same time, he did notwant to wreck a relationship he hadspent years building.Ultimately, he had no choice. "Thiswas an opportunities issue and aninvestment issue," he said.After hearing Delex's case, theGovernment Accountability Officedecided Oct. 8 that agencies must setaside some task orders if at least twosmall businesses could do the work,which is known as the "rule of two."The Federal Acquisition Regulationrequires a contracting officer to reserveany order of more than $100,000 if atleast two responsible small businessescould enter bids. The regulation was thefoundation for GAO's ruling.Driscoll won the protest, and theresult might give small businesses suchas Delex a new edge in governmentcontracting. By ruling that agenciesmust set aside work for small businessesif they find two such companies thatare capable of meeting the agencies'needs, the GAO buttressed rules thatagencies have often disregarded.However, the decision could stressrelationships between companies andagencies. Agency officials expect moretime-consuming protests for not settingaside work. And they're frustrated bythe prospect."Delex hints at some of the angst peoplehaven't had since" acquisitionreforms in the 1990s, said RayBjorklund, senior vice president andchief knowledge officer at FedSourcesInc., a market research firm.When they solicited the task orderunder the training contract, Navy officialsdecided not to set it aside for smallbusinesses. Instead, they opened thecompetition to large and small companieson the multiple-award contract."GAO tipped the playing field infavor of small-business contract-holders,"said Alan Chvotkin, executive vicepresident and counsel at theProfessional Services Council, anindustry group. GAO has significantlychanged how agencies and contractorsplan their acquisition strategies, especiallywhen it comes to multiple-awardcontracts that have a mixture of smalland large companies, he added.As a result of the decision, programmanagers and contracting officers willlikely give more weight to small-businessset-asides in their initial acquisitionstrategies, Bjorklund said. Whenagency officials need to buy somethingquickly, the greater possibility of aprotest by a small company on a task ordelivery order would make them keepset-asides in mind."Small businesses should capitalize onthis opportunity," said Andy McCann,vice president and geographic salesleader at EDS Corp.'s U.S. Governmentand Public Sector business.At this point, though, many companiesand industry observers are still trying tounderstand what effect the ruling willhave. An executive at a major systemsintegrator who asked to remain anonymoussaid large companies aren't enthusiasticabout the ruling, but the outcomedepends on how a contracting officerinterprets GAO's decision. Integratorsare waiting to see how to set up biddingstrategies and partner with small businesses,especially on mixed indefinitedelivery,indefinite-quantity contracts.The ruling could cause small businesses to consider new ways of workingwith integrators to ensure that they offerthe best services and win future governmentcontracts, McCann said."This ruling creates an incentive forsmall businesses to strive to be selectedon IDIQ contract vehicles or to teamwith a large integrator on an IDIQ contract,"McCann said. It might alsoencourage companies to put moreemphasis on their mentor/protégéprograms.Nevertheless, other experts say GAO'sdecision doesn't give advantages to smallcompanies."On the surface, this may seem to be abenefit to small businesses, but the pricemay be too high," said Guy Timberlake,chief visionary and chief executive officerat the American SmallBusiness Coalition.Timberlake said he is concernedthat the decision mightstrain the already tense relationshipbetween agencies andsmall businesses.Officials and experts agreethat the ruling could increasethe distrust between industryand government. Agencies might suspectcontractors of planning protestsand including those projected costs intheir bids.Karen Kopf, operations director at theGeneral Services Administration'sFederal Systems Integration andManagement Center, said she fearedbecoming bogged down in protests,especially now that companies canprotest task and delivery orders and beheard by GAO.Lee Harvey, the Army's deputy programexecutive officer for enterpriseinformation systems, said that a decadeago, fewer companies protested awarddecisions because they wanted goodrelationships with the government. Buttoday's larger orders encourage people toprotest, he said, because companies havemore at stake."Frustration sums up our feelings,"Harvey said about GAO's decision andits likely effects.The crux of the issue was the Navy's contentionthat Delex's protest was against adelivery order and not a contract, makingit exempt from the rule of two. Butchanges by Congress opened the ordersto protests. In January, lawmakersdecided that task and delivery orderswere growing so large and complex thatthey equaled traditional contracts. Theydecided orders needed more regulationbecause agencies have been using task-ordercontracts for more than 50 percentof their procurements, compared with 14percent in 1990, experts said. In the1990s, the government viewed taskorders as distinct from contracts and putthose orders outside GAO's jurisdiction.GAO will keep its new authority toreview task-order protests for threeyears. Legislators plan to evaluate theeffects before then and make any necessarychanges.In the meantime, the new authority ischanging the acquisition field, andGAO's ruling could further alter howagencies view orders and contracts."More of these multiple-awardopportunities might be issued as full-and-open [competitions] with no setasidecomponents, creating a more prohibitivecompetition environment forthe average small business," Timberlakesaid.Agencies will reassess the advantagesof multiple-award contracts because ofGAO's ruling, Bjorklund said. Theymight ask themselves why they shouldgo through the hassle of awarding anIDIQ and then go through anothercompetition for task orders.However, some experts say GAO'sdecision won't affect multiple-awardcontracts that separate small and largebusinesses.The ruling will have little effect onNASA's Solutions for EnterprisewideProcurement, a governmentwide acquisitioncontract, said Joanne Woytek,NASA's SEWP program manager.SEWP is organized into four groupsof multiple-award contracts. Two areexclusively for small businesses with oneof the two set-asides for small companiesowned by service-disabled veterans.The other two groups are primarilyfor large businesses, though a few smallcompanies are in the group.Woytek said the ruling might affect afew orders in those groups that lack set-asides,but the small businesses in thosegroups are generally winning orderswhen they submit a reasonable bid."We have always encouraged contractingofficers to provide a small-businesspreference, and now it will be moretargeted if two of the small companiesin the open groups can and want to providea reasonable quote," she said.Whether the ruling opens an advantagefor small businesses, it has left thecontracting community in limbo.Ultimately, though, the rules arenothing new, and GAO has simply reinforcedthem, Driscoll said.

valued more than $100,000 for small businesses
if there is a reasonable expectation
that there are at least two small businesses
that perform that type of work.

The 2008 National Defense
Authorization Act extended the "rule of
two" to task-order contracts when the law
allowed companies to protest task-order
awards worth more than $10 million.

The protest authority for the task orders
expires in 2011.



Matthew Weigelt (
is acquisition editor at Federal Computer

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