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17 February 2021

COFC: "Rule Of Two" Must Be Analyzed Before "Any" Acquisition

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The Court of Federal Claims (COFC) recently affirmed that agencies are required to apply the "Rule of Two" to all federal acquisitions in its decision of Tolliver Grp., ...
United States Government, Public Sector
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The Court of Federal Claims (COFC) recently affirmed that agencies are required to apply the "Rule of Two" to all federal acquisitions in its decision of Tolliver Grp., Inc. v. United States. Further, agencies must give a reasonable explanation supported by factual evidence when canceling solicitations. The decision ensures that small businesses will continue to have robust access to federal procurement opportunities.

Army Cancels SDVOSB RFPs in Favor of Unrestricted Multiple Award Contract

The two solicitations at issue in this case were for the procurement of training staff for a field artillery school located in Fort Sill, Oklahoma. Both solicitations were set-aside for service-disabled veteran-owned small businesses (SDVOSBs). After the Army awarded the contracts to two SDVOSBs, a third SDVOSB bidder protested the awards, alleging deficiencies in the Army's evaluation of various factors.

The Army issued Notices of Corrective Action for both contracts, stating that it would cancel both awards, "[r]e-evaluate the requirement and acquisition strategy to ensure that it accurately reflects the Army's current need," and either cancel or amend the solicitations. The Army's internal memorandums indicate that part of the rationale for revisiting the solicitations was because the Army now had a new multiple award indefinite delivery indefinite quantity (MAIDIQ) contract vehicle that encompassed the scope of the two solicitations at issue.

Using a MAIDIQ allows the government to select several possible vendors for an agency to rely on, then ask that small group of vendors to bid against one another to complete each separate task; giving the government a competitive price for each task without initiating a new contract competition and all that it would demand of contracting officers. While the Army initially intended the MAIDIQ to be a small business set-aside, the Army determined, after conducting market research, that given the breadth of the MAIDIQ's anticipated scope of work, none of the small business proposals could meet the requirements.

On September 13, 2018, the Army issued the MAIDIQ Solicitation as a full and open competition. Five businesses were awarded the MAIDIQ contract, none of which qualified as a small business.

SDVOSBs Protest the Multiple Award Contract

While never documenting official cancellations of the two solicitations at issue, the Army wrote bidders informing them that the Army had chosen to utilize the MAIDIQ to support the solicitations. Two SDVOSBs involved in the original solicitations filed protests, arguing that (1) the Army's decision to cancel the solicitations was not based on the defects presented in the original bid protests but simply because the Army now wanted to use the MAIDIQ and (2) by moving the orders to the MAIDIQ, which consisted only of large businesses, the Army violated the Rule of Two.

The Rule of Two requires contracting officers to set aside any acquisition over the simplified acquisition threshold for small business participation when there is a reasonable expectation of the following:

  • Offers will be obtained from at least two responsible small business concerns.
  • The award will be made at fair market prices.

The Army responded to the plaintiffs' first assertion by citing its right to cancel a solicitation when it does not accurately reflect its needs, and that the Army had provided sufficient reasons for why the MAIDIQ was a better contract vehicle for the orders. To the second assertion, the Army argued that, per 15 U.S.C. § 644(r), "contracting officers have the discretion to make use of a multi-award contract without first conducting a rule of two analysis to determine whether the task order should be set aside for small business."

The COFC's decision begins with a lengthy analysis regarding the court's jurisdiction over the case. The court ultimately held that it can review cancellations of solicitations as part of its authority under the fourth prong of 28 U.S.C. § 1491(b)(1), which gives the court "jurisdiction to render judgment on an action by an interested party objecting . . . [4] any alleged violation of statute or regulation in connection with a procurement or a proposed procurement." With this settled, the court turned its attention to the plaintiffs' two arguments.

Agencies Must Provide Reasonable Explanations When Canceling Solicitations

In the contracting officer's (CO) memo supporting the Army's decision to cancel one of the solicitations, the CO stated: "I believe the Government's best interest can be met by competing the JFO, 13F and KMS requirements under the MICC-Fort Eustis recently awarded TMS MAIDIQ. Both time and money can be saved by the Government in pursuit of this avenue." The court found this rationale lacking, stating that a recitation of the general benefits of a MAIDIQ contract do not qualify as a reasonable explanation for canceling the solicitations. Rather, a reasonable explanation must state why the original solicitations no longer meet the Army's needs, as opposed to the MAIDIQ contract, by citing factual evidence.

As the court put it: "[E]ven if the GSA MAS generally is insufficient to meet the agency's needs in some long-term, strategic sense - as compared to the breadth of the new TMS MAIDIQ - that says nothing about the suitability of the GSA MAS to meet the agency's current needs with respect to the 13F and JFOC procurements at issue."

As to the assertion that the MAIDIQ contract would save the Army time and money, the court stated that "[i]f the Court were to accept this rationale at face value without asking for supporting details, the government could always include this attractive catch-all at the end of its decision document to justify almost any solicitation cancellation. Meaningful judicial review requires more than just accepting such a bald assertion."

Rule of Two Analysis Necessary Before an Agency Can Elect to Procure a Requirement from a Multiple-Award Contract (MAC) Vehicle

The Army argued that a Rule of Two analysis was not required because according to the Small Business Jobs Act, as implemented in 15 U.S.C. § 644(r), federal agencies have the discretion to issue MACs without first conducting a Rule of Two analysis to determine whether it should be set aside for small businesses. The COFC characterized the Army's argument essentially is this: having exercised its discretion not to set aside any portion of the subject MAIDIQ vehicle or any of the MAIDIQ contract awards for small business, the agency could utilize the MAIDIQ vehicle for any acquisition-and avoid the Rule of Two-so long as the contemplated scope of work was within the MAIDIQ contract's scope.

The court emphasized the general rule that "the Rule of Two unambiguously applies to 'any' 'acquisition,' FAR 19.502-2, without any loophole for MAIDIQ task orders." As a result, even though the Army may have satisfied the Rule of Two requirements in respect to forming the MAIDIQ, it was still required to also satisfy its set-aside obligations under the Rule of Two with respect to the two original solicitations at issue.

If, after completing a Rule of Two analysis, the Army found that more than one small business could not make an offer on the solicitations or that setting aside the solicitation for small businesses would result in not being able to make an award at a fair market price, the Army could procure the solicitations' requirements through the MAIDIQ. However, the Army could not forgo this analysis and simply change the contract vehicle because it decided, on second thought, that the MAIDIQ was better-suited.

Takeaways for Government Contractors

By clarifying the scope of the Rule of Two, the COFC has provided a roadmap for small businesses wishing to challenge an agency's adherence to the Rule of Two. This is important as small businesses might otherwise lose valuable access to contracts simply because they do not meet the qualifications for contract vehicles such as MAIDIQs. The court has also affirmed that procuring agencies must give more than cursory reasons for canceling a solicitation. Rather, an agency must provide a reasonable explanation supported by factual evidence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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