Age-old Small Business Contracting Challenge Rears its Ugly Head, Again

For the third time in five years, another court decision is opening the door to major changes to multiple award contracts.

The Court of Federal Claims weighed in on the controversial “rule of two” requirement originally intended to help promote small business contracting, but now is causing concern and confusion for how agencies should apply it to multiple award contracts.

At the heart of the issue is a court ruling in favor of small businesses who protested what experts called a ridiculously poor choice by the Army to set-aside and award a contract to small firms, and then once it faced a protest, pull back the awards and re-release the task order under a multiple award contract where there were no small businesses.

Known as the Tolliver decision, the court said found that “the rule of two unambiguously applies to ‘any’ ‘acquisition,’ FAR 19.502-2, without any loophole for [multiple awards IDIQ] task orders.”

Todd Overman, a lawyer and chairman of the government practices group for Bass Berry and Sims, wrote in a blog post this means even though the Army may have satisfied the rule of two requirements in respect to forming the multiple award contract, it still must meet the rule of two set-aside requirement as it started to do with its first solicitation.

“This is a big deal,” said Overman in an interview. “It does have the potential far reaching impact with regards the need to document the rule of two analysis.”

The debate over when the rule of two applies has been ongoing for more than two decades.

Industry experts say when the General Services Administration was setting up the schedule contracts in the 1990s, the debate over whether the rule of two would apply was strong.

The debate continued in the 2008 Delex ruling where the Government Accountability Office reinforced the rule of two, saying it does apply to any task or delivery orders.

Congress weighed in on the rule of two in the Small Business Jobs Act of 2010 where it tried to address the confusion by saying that at the ordering level for multiple-award contracts, agencies have discretion to set aside orders and the ‘rule of two’ is not mandatory.

Then in 2015 came the Kingdomware case that went all the way to the Supreme Court, which found the rule of two is required for all contracts let by the Department of Veterans Affairs under the Simplified Acquisition Threshold — between $3,000 and $150,000.

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