David and Goliath Redux - The Delex Protest

The Government has long held that most FAR provisions controlling things like competition, set-asides, protests and the like applied only to “contracts” and not to delivery orders issued under those contracts. Under this construct, giant Government Wide Acquisition Contract (GWAC) programs like Millennia (GSA), ANSWER (GSA), SEWP (NASA), ENCORE (DISA), READ (EPA) and COMMITS (Commerce) were considered exempt from requirements to set aside delivery orders for small businesses or even to compete delivery orders among contract holders when it was inconvenient.

Because delivery orders were considered to be not subject to protest, contract holders left out in the cold had little or no recourse. That all changed last January when the 2008 Defense Authorization Bill made large delivery orders subject to protest.

Now, all kinds of issues are arising out of protests of delivery orders. One of those was decided by the GAO on October 8th, 2008.

A small company by the name of Delex Systems protested a Delivery Order Proposal Request (DOPR) for training services issued to all holders of Naval Air Systems Command (NAVAIR) Training Systems Contracts (TSC II) on an unrestricted basis. Under a FAR provision (§ 19.502-2(b)) commonly referred to as the “Rule of Two,” Delex maintained that NAVAIR was required to set aside the requirement exclusively for the participation of small businesses under FAR 19.502-2(b). The so-called Rule of Two requires agencies to set aside for small businesses any acquisition exceeding $100,000 if there is a reasonable expectation of receiving fair market price offers from at least two responsible small business concerns. The Government responded that a delivery order is not a “contract” and therefore the action contemplated was not an “acquisition” and not subject to the rule.

GAO disagreed and found for Delex.

Here is the Digest in full text:

(1) The set-aside provisions of Federal Acquisition Regulation (FAR) § 19.502-2(b) apply to competitions for task and delivery orders issued under multiple-award contracts.

(2) Protest is sustained where agency failed to comply with the set-aside provisions of FAR § 19.502-2(b), when issuing, on an unrestricted basis, the solicitation for a delivery order under multiple-award contracts.

(3) Protest alleging that agency erred in concluding that it had no reasonable expectation of receiving offers from two small businesses is sustained where the record shows that the agency’s set-aside determination is not adequately supported by the record.

So far, this stuff is dry as dust. Here’s the thing. Remember that list of GWACs back in the first paragraph? That’s just a few of the dozens that are out there and they are ALL affected by this decision. And it’s that third finding that has the impact.

Until the Delex decision, it was up the agency (or the funding source) to decide whether the requirement should be directed to a single company, competed without restriction or set aside for small businesses. And if someone disagreed, it was just tough. Delivery orders couldn’t be protested.

But, now they can. And if the agencies don’t follow the Rule of Two in their delivery order competitions, a protest can stop the acquisition cold. The only wiggle room left to allow unrestricted competition is the “reasonable expectation of receiving offers from two small businesses.” If that reasonable expectation doesn’t exist, an agency does not have to set aside the order under the Rule of Two. The problem with most of those giant GWAC programs is that the Government has pre-qualified multiple small businesses in making the original awards! All of those programs made awards to multiple large businesses and multiple small businesses – in some cases, as many as twenty or thirty of each. And, for the most part, the statements of work in all the contracts on a given program are identical.

With multiple, pre-qualified small businesses in each program, it will be virtually impossible for the Government to assert that they have no expectation of receiving offers from two small businesses. Effectively, this ruling could cause nearly all delivery orders under these programs to be set aside for the small businesses that hold contracts under them.

If you’re a small business, this is very good news indeed. If you’re a giant corporation, this is probably a tiny concern for your business. If you’re a mid-sized Government contractor and you have invested heavily in “winning” contracts in the GWAC programs, this is a major development. And, it’s not a good one.

This gives a whole new meaning to the term “mid-sized squeeze.”