Panoptic Enterprises'


Federal Acquisition Developments, Guidance, and Opinions

November 2008
Vol. IX, No. 11


2009 Defense Authorization Act Includes Clean Contracting Act
GAO Rules Task Orders Subject to Set-Aside Procedures
GSAR Rewrite Keeps Rolling Along
Nonmanufacturer Rule Waivers Proposed
DFARS Addresses Selected Reserve, Human Subjects
Women-Owned Business Assistance Program Instituted
Nine More Biobased Items Proposed

2009 Defense Authorization Act
Includes Clean Contracting Act

On October 18, President Bush signed into law the $612 billion Duncan Hunter Defense Authorization Act for Fiscal Year 2009 (Public Law 110-417), which includes Title VIII, Acquisition Policy, Acquisition Management, and Related Matters. Of particular note is the inclusion of the Clean Contracting Act of 2008 (Sections 861 through 874), which applies governmentwide.

GAO Rules Task Orders Subject to Set-Aside Procedures

The Government Accountability Office (GAO) has ruled in a protest decision that task and delivery orders issued under multiple-award contracts are subject to small business set-aside provisions in FAR Subpart 19.5, Set-Asides for Small Business (B-400403, Delex Systems, Inc., October 8, 2008). This is the GAO’s first use of the authority granted to it by Section 843 of the Fiscal Year 2008 National Defense Authorization Act (Public Law 110-181) to consider protests of task and delivery orders that exceed $10,000,000 (see the February 2008 Federal Contracts Perspective article “Defense Authorization Act Restricts A-76 Competitions, Extends FAR Subpart 13.5,” and for the FAR implementation of Section 843 see the October 2008 Federal Contracts Perspective article “FAC 2005-27 Requires ‘Enhanced Competition’ for Task and Delivery Orders”).

On August 13, 2003, the Naval Air Systems Command (NAVAIR) awarded multiple indefinite-delivery/indefinite-quantity (IDIQ) contracts for general aviation training products. Four IDIQ contracts were awarded to small businesses, one of which was Delex Systems, four were awarded to large businesses, and the contracts had an ordering period of eight years. In the solicitation for the contracts, NAVAIR stated that it would reserve the right to solicit individual delivery orders on a small business set-aside basis to meet NAVAIR’s small business goal.

On May 22, 2008, NAVAIR issued a delivery order proposal request for the Naval Center for Aviation Technical Training. The proposal request anticipated a five-year performance period with an estimated value of $75,000,000. On June 11, 2008, NAVAIR amended each of the IDIQ contracts to incorporate FAR 52.219-28, Post-Award Small Business Program Rerepresentation, and on June 16, 2008, the contracting officer asked each of the small businesses to rerepresent their small business size status in accordance with FAR 52.219-28 (see the August 2007 Federal Contracts Perspective article “FAC 2005-18 Requires Contractors to Rerepresent Small Business Size Status”). In response, only two firms recertified as small businesses -- Delex Systems was one. As a consequence, the contracting officer determined that there was not a reasonable expectation of obtaining competitive offers from at least two small business concerns,” so the delivery order proposal request was issued on an unrestricted basis to all the IDIQ contractors. Delex Systems protested that NAVAIR erred in concluding that it had no reasonable expectation of receiving offers from two small business IDIQ contractors.

Paragraph (b) of FAR 19.502-2, Total Small Business Set-Asides, states, “The contracting officer shall set aside any acquisition over $100,000 for small business participation when there is a reasonable expectation that (1) offers will be obtained from at least two responsible small business concerns offering the products of different small business concerns...and (2) award will be made at fair market prices.” This is commonly called the “Rule of Two.” The Navy, representing NAVAIR, argued that FAR 19.502-2(b) does not apply to the issuance of task and delivery orders. The Navy reasoned that an agency’s obligation to follow the requirements of FAR Subpart 19.5 is derived from the requirements for full and open competition in FAR Part 6, Competition Requirements. Paragraph (c) of FAR 6.203, Set-Asides for Small Business Concerns, requires agencies to follow FAR Subpart 19.5. However, when an agency is placing task and delivery orders under a multiple-award IDIQ contract, subparagraph (b)(1)(ii) of FAR 16.505, Ordering, states that the competition requirements in FAR Part 6 do not apply to the ordering process. Therefore, since FAR Part 6 contains the requirement that agencies comply with FAR Subpart 19.5 and its “Rule of Two,” and since agencies are exempt from the requirements of FAR Part 6 when placing task and delivery orders, there is no requirement to set-aside the proposal request even if there was a likelihood that Delex and the other small business IDIQ contractor would submit proposals (a contention the Navy disputed as well).

GAO decided that this protest was not merely a matter of regulation interpretation but a matter of statute. The full and open competition regulations in FAR Part 6 implement the requirements of the Competition in Contracting Act of 1984 (CICA), and the regulations for using multiple-award IDIQ contracts in FAR Subpart 16.5 implement the requirements of the Federal Acquisition Streamlining Act of 1994 (FASA). Of particular importance is that the “Rule of Two” regulations in FAR Subpart 19.5 are intended to implement the Small Business Act of 1953. The Small Business Act states that small businesses “shall receive any award or contract...as to which it is determined by the Administration and the contracting procurement or disposal agency...(3) to be in the interest of assuring that a fair proportion of the total purchases and contracts for property and services for the government in each industry category are placed with small business concerns...” While the Small Business Act does not specifically enunciate the “Rule of Two,” in 1984 the Office of Federal Procurement Policy (OFPP) inserted the “Rule of Two” into the draft FAR to implement the Small Business Act, and the final FAR included the “Rule of Two.”

Next, GAO notes that both CICA and FASA expressly recognized that their requirements were to be harmonized with existing statutes. Nothing in CICA or FASA exempts task or delivery orders from the “Rule of Two.” GAO believes that the Navy “overreads” the statement in FAR 16.505(b)(1)(ii) that the competition requirements in FAR Part 6 do not apply to the ordering process:

                 “When an agency is placing task and delivery orders under multiple-award contracts, it cannot, by definition, hold a full and open competition as described by FAR Part 6. This is because a contractor’s eligibility for future task and delivery orders is established by its receipt of one of the underlying awards; once the multiple-award contract is established, contractors who have not received an award have no vehicle (i.e., no contract) which they can use to compete for the placement of orders. Thus, in our view, the opening sentence of FAR sect. 16.505(b)(1)(ii) -- i.e., ‘[t]he competition requirements in Part 6 and the policies in Subpart 15.3 [Source Selection] do not apply to the ordering process’ -- means only what it says: that the competition requirements of Part 6 do not apply to ordering...
                 “In our view, the legal question is whether the Rule of Two, which by its terms applies to ‘any acquisition over $100,000,’ FAR 19.502-2(b), applies to individually competed task or delivery orders under multiple-award contracts. We conclude that it does...”
While GAO has decided that the “Rule of Two” applies to task and delivery orders placed under FAR Subpart 16.5, note that task and delivery orders placed under FAR Subpart 8.4, Federal Supply Schedules, are specifically exempt from the “Rule of Two” -- paragraph (a) FAR 8.405-5, Small Business, states, “the mandatory preference programs of Part 19 do not apply...”

Since most agencies are relying more and more on task and delivery orders to acquire the products and services they need, some acquisition experts predict that this is the first of a deluge of protests against task and delivery orders over $10,000,000. Before the 2008 National Defense Authorization Act, FAR 16.505(a)(9) had stated “No protest under [FAR] Subpart 33.1 [Protests] is authorized in connection with the issuance or proposed issuance of an order under a task-order contract or delivery-order contract, except for a protest on the grounds that the order increases the scope, period, or maximum value of the contract...” That blanket exemption no longer exists.

GSAR Rewrite Keeps Rolling Along

The General Services Administration (GSA) is continuing its rewrite of the GSA Acquisition Regulation (GSAR) with the proposed revision of five GSAR parts.

Nonmanufacturer Rule Waivers Proposed

The Small Business Administration (SBA) is proposing to waive the nonmanufacturer rule for the following industries: control cable and conductors, North American Industry Classification System (NAICS) code 335931, product service code 6145; trailers and heavy duty truck tractors, NAICS code 333924, product service code 2330; and line hardware (insulator strings), NAICS code 335932, product service code 5975. SBA is inviting the public to comment on these proposed waivers, or to provide information on potential small business sources for these products by October 27, 2008, to Edith G. Butler, Program Analyst, Small Business Administration, Office of Government Contracting, 409 3rd Street, SW, Suite 8800, Washington, DC 20416.

DFARS Addresses Selected Reserve, Human Subjects

The Department of Defense (DOD) issued one final rule and two proposed rules last month:

Women-Owned Business Assistance Program Instituted

The Small Business Administration (SBA) is establishing a new women-owned small business (WOSB) federal contract assistance program as authorized by the Small Business Act. SBA has published a final rule putting in place the regulations that will govern the WOSB program, which will include set-asides for WOSBs and economically disadvantaged WOSBs (EDWOSBs), but SBA has not yet identified which industries will be eligible for such set-asides. The new regulations are in Title 13 of the Code of Federal Regulations, Part 127, Women-Owned Small Business Federal Contract Assistance Procedures.

On December 27, 2007, SBA published a proposed rule for the WOSB program and requested comments (see the January 2008 Federal Contracts Perspective article “SBA Proposes Set-Aside Program for Women-Owned Small Businesses”). The rule proposed to restrict WOSB and EDWOSB set-asides to contracts not exceeding $3,000,000 ($5,000,000 for manufacturing) in four industries where WOSBs were underrepresented according to a study SBA commissioned: coating, engraving, heat treating, and allied activities (North American Industry Classification System (NAICS) codes 3328); household and institutional furniture and kitchen cabinet manufacturing (NAICS 3371); other motor vehicle dealers (NAICS 4412); and National Security and International Affairs (NAICS 9281). In addition, the rule proposed standards for determining the eligibility of a concern as a WOSB or EDWOSB, and required any firm receiving a contract under those procedures to certify its status as a WOSB or EDWOSB.

SBA received approximately 1,720 comments: 1,610 comments from individuals, 31 comments from individuals using form letters from various associations or organizations, 45 comments from associations or organizations, 31 comments from members of Congress, and three comments from federal agencies. Of those 1,720 comments, 1,689 requested withdrawal of the proposed rule and/or stated opposition to some portion of the proposed rule: 1,591 comments requested that the proposed rule be withdrawn; 828 comments stated that some aspect of the proposed rule frustrated Congressional intent; 173 comments opposed the method by which the proposed rule would require a procuring agency to determine that the set-aside is consistent with constitutional standards; 104 comments were concerned with the methodology used by SBA to determine industries in which WOSBs were underrepresented or substantially underrepresented; 36 alleged that SBA and/or the organization that conducted the study, the Kauffman-RAND Institute for Entrepreneurship Public Policy (RAND), applied the incorrect level of scrutiny to determine underrepresentation or otherwise addressed Constitutional concerns; seven comments addressed SBA’s use of the value of contract dollars to determine underrepresentation; and four comments opposed the proposed self-certification process.

The most significant comments involved the study that identified only four industries as being underrepresented with WOSBs. These comments stated that SBA should have used a broader methodology in the RAND study to identify the industries in which WOSBs are underrepresented. The comments pointed out that SBA declined to adopt the approach in the RAND study that would have classified 87% of industries as underrepresented, but instead adopted the most restrictive approach proposed by the report.

The RAND study outlined twenty-eight different approaches for measuring the underrepresentation of WOSBs. Each approach uses a different data source or a different version of the same data source. Depending on the approach, the RAND study yielded different levels of WOSB representation in federal procurement. SBA eliminated various approaches as unjustifiable, and selected the approach that it believed most appropriately conformed to the applicable statutory requirements, most accurately reflected the measure employed, and was legally justifiable. The selected approach compared the percentage of federal contract dollars going to WOSBs to the percentage of total revenue from all sources going to WOSBs in 4-digit NAICS codes. Using this approach, SBA identified four industries in which WOSBs were underrepresented or substantially underrepresented, and this approach was used in the proposed rule.

Because of the large number of comments opposed to the selected approach, SBA engaged in a further review and examination of the RAND study, including the data sources and in particular the Central Contractor Registration (CCR) (http://www.ccr.gov) data that was relied upon to arrive at the four industries. As a result of this further examination, SBA has now identified a limitation inherent in the CCR data. Specifically, when RAND computed the disparity ratio to determine underrepresentation, each firm’s total revenue was counted in every NAICS code associated with the firm. This means a firm’s total revenue could be counted for multiple NAICS codes, thus overstating the aggregate revenue figures. For example, a WOSB with revenues of $1,000,000 split between three different NAICS codes was counted as having $1,000,000 in revenues in each of the three NAICS codes, thus making it appear that the firm had $3,000,000 in revenues. Therefore, the final rule does not identify the industries in which WOSBs are underrepresented or substantially underrepresented in federal procurement. Instead, SBA is issuing a proposed rule and requesting comments on what effect, if any, the CCR data has on the industries determined to be underrepresented. Once SBA makes its final determination and decides on the eligible industries, it will publish a notice in the Federal Register.

Using data from the Census Bureau, the following 32 industries (out of 140 NAICS codes analyzed in the RAND study) are identified as underrepresented or substantially underrepresented:

Comments on the proposed rule must be submitted no later than October 31, 2008, either through the Federal eRulemaking portal at http://www.regulations.gov; or by mail, hand delivery, or courier to Linda Korbol, Assistant Administrator for Women's Procurement, Office of Government Contracting, Small Business Administration, 409 Third Street, SW, Washington, DC 20416.

Nine More Biobased Items Proposed

The United States Department of Agriculture (USDA) is proposing to add nine more sections to Title 7 of the Code of Federal Regulations (CFR), Part 2902, Guidelines for Designating Biobased Products for Federal Procurement, to identify nine more biobased products to be given preference in federal procurements as provided under Section 9002 of the Farm Security and Rural Investment Act of 2002 (FSRIA), and to specify the minimum level of biobased content to be contained in the procured products.

The following are the proposed new designated items and their Title 7 section numbers:

      2902.43 Chain and cable lubricants
      2902.44, Corrosion preventatives
      2902.45, Food cleaners
      2902.46, Foaming lubricants
      2902.47, Gear lubricants
      2902.48, General purpose household cleaners
      2902.49, Industrial cleaners
      2902.50, Multipurpose cleaners
      2902.51, Parts wash solutions

As a general rule, procuring agencies must purchase biobased products within these designated items where the purchase price of the procurement item exceeds $10,000 or where the quantity of such items or functionally equivalent items purchased over the preceding fiscal year equaled $10,000 or more, unless products within a designated item: (1) are not reasonably available within a reasonable period of time; (2) fail to meet the reasonable performance standards of the procuring agencies; or (3) are available only at an unreasonable price. The $10,000 threshold applies to federal agencies as a whole and not to agency subgroups such as regional offices or subagencies of the larger federal department or agency.

Comments on the proposed additions to the biobased products list must be submitted no later than December 22, 2008, by any of the following means: (1) Federal eRulemaking Portal: http://www.regulations.gov; (2) e-mail: biopreferred@usda.gov; or (3) mail/commercial/hand delivery: Shana Love, USDA, Office of the Assistant Secretary for Administration, Room 209A, Whitten Building, 1400 Independence Avenue, SW, Washington, DC 20250-0103.

For more on the biobased products program, go to http://www.biopreferred.gov, and see the June 2008 Federal Contracts Perspective article “USDA Adds 27 Items to Biobased Products List, Exempts DOD and NASA from Requirements.”

Copyright 2008 by Panoptic Enterprises. All Rights Reserved.

Return to the Newsletters Library.

Return to the Main Page.