GAO Sides with the FAR Council: The Small Business Act’s Set-Aside Provisions Do Not Apply Outside the United States
October 9, 2013
By: Eric Whytsell
A recent General Accountability Office (GAO) case resolves an ongoing dispute between the Small Business Administration (SBA) and the Office of Federal Procurement Policy (OFPP) concerning the application of set-aside rules outside the United States. It also offers some interesting insight into the GAO’s approach to resolving inter-agency squabbles concerning statutory interpretation.
In Latvian Connection General Trading and Construction LLC, B-408633 (Comp. Gen. Sept. 18, 2013), the Air Force’s 405th Expeditionary Contracting Squadron in Oman issued an unrestricted RFQ for armored cable. Lativian Connection, a veteran-owned small business based in Kuwait protested the Air Force’s failure to conduct the procurement as a small business set-aside in accordance with the Small Business Act (the “Act”).
More specifically, Latvian Connection argued that, because the procurement was valued in excess of $2,500 and less than $100,000, 15 U.S.C. § 644(j)(1) mandates that it must be set aside for small business unless the CO is unable to obtain offers from two or more small business concerns offering market-competitive pricing, quality and delivery. The SBA regulations implementing the Act contain similar language, requiring set-asides of acquisitions between the Micropurchase and Simplified Acquisition Thresholds if there exists a reasonable expectation that market-competitive offers will be received from at least two offerors. 13 C.F.R. § 125.2(f)(1) (2013).
The Air Force responded by pointing to Federal Acquisition Regulation (FAR) §19.000(b), which clearly states that small business set-aside programs under FAR Part 19 apply only in the United States and its outlying areas (which do not include Oman). The SBA, which the GAO asked for its position on the question, disagreed, arguing that the FAR’s “‘statement of policy’ does not properly implement the Small Business Act requirements.” That SBA took this position should come as no surprise, as it asked the Federal Acquisition Regulatory Council (established by the OFPP to issue and maintain the FAR) in 2011 to amend FAR §19.000(b) to provide for application of the Act to overseas acquisitions. The Council unanimously rejected SBA’s request, upholding the geographical limitation that has been in the FAR since its inception and has existed in prior regulations since at least 1959.
In considering the question, GAO first noted that both §644(j)(1) and its implementing regulation are silent on the question of their application outside the United States and none of the parties identified any relevant legislative history. In contrast, FAR §19.000(b) does specifically address the issue. Assessing the FAR provision in light of the Act and SBA regulations, GAO concluded, “we cannot say that the validly-promulgated, long-standing . . . [FAR provision] is inconsistent with, or contrary to, the Small Business Act” or the SBA’s implementing regulation. GAO went on to note that, while SBA disagrees with the Council’s interpretation of the Act, the SBA’s interpretation reflects nothing more than its informal legal opinion. It is not even reflected in its own implementing regulation.
Under these circumstances, GAO explained, SBA’s view of the Act “does not overcome the deference accorded to the FAR.” For this reason, the Air Force acted reasonably in relying upon FAR §19.000(b) and the protest was denied.
The lesson for practitioners? When you want to argue for one agency’s statutory interpretation over another’s, make sure the agency you’re siding with has actually articulated its position in regulations or otherwise rather than simply offering an informal legal opinion. Whether the agency has formally expressed its position could make all the difference.
Eric Whytsell is the attorney responsible for the content of this article.
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