In a recent article, we speculated that Kingdomware Techs., Inc. v. United States would have broader implications for small business set-aside requirements under General Services Administration (GSA) Federal Supply Schedules (FSS). The article highlights the split between the Kingdomware decision and GSA's longstanding position that orders under GSA FSS contracts are not required to be set aside for small businesses, even when the Rule of Two is satisfied (which occurs when the contracting officer reasonably expects that at least two eligible small businesses will submit offers and that the award can be made at a fair and reasonable price). The Kingdomware decision states that "orders" issued under FSS contracts are contracts and that, in some instances, the Rule of Two requirement therefore applies to FSS orders.
We speculated that Kingdomware would provoke conversations and, potentially, litigation regarding the applicability of the Rule of Two to certain orders under GSA FSS contracts. Instead of waiting for guidance, GSA posted a blog entry unequivocally asserting that Kingdomware does not alter GSA's longstanding position. According to GSA, unless agency-specific statutes or regulations require a contracting officer to set aside a procurement, "FAR 8.405-5(1) states 'preference programs of [P]art 19 are not mandatory in this subpart,' and ordering activity contracting officers are provided the discretionary authority to set aside FSS orders." GSA also concludes that contractors can "jump into the fourth quarter buying season with confidence [] knowing there has been no change in procedures for using the Federal Supply Schedules."
GSA's blog emphasizes contracting officers' right to exercise discretion when deciding to set aside orders under a GSA FSS and cites FAR 8.405-5(a) and FAR 19.000(a)(3) for support.
As stated in our article, we are less confident in GSA's position for a number of reasons. First, its reliance on FAR 8.405-5(a) is in jeopardy because FAR 8.405-5(a) exempts "individual orders" for supplies or services placed under FSS contracts and the Kingdomware decision found no distinction between an FSS "order" and a "contract."
Second, although Congress amended the Small Business Act to permit contracting officers to set aside multiple-award contracts "at their discretion" (15 U.S.C.A. § 644(r)), Congress did not expressly exempt the requirement to set aside all procurements between $2,500 and $100,000 if the Rule of Two is satisfied, which is a requirement in 15 U.S.C.A. § 644(j).
As we speculated, Kingdomware is likely the starting point for discussions, litigation, and potential legislative amendments. Refer to our article for a more complete understanding of the relationship between the statutes, regulations, and interpreting case law, and for a glimpse of what may happen in the Kingdomware aftermath.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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