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Government Contracts Monitor

The Set-Aside Process Gone Wild – Will the Federal Circuit Reconsider?

February 11, 2014

By: Lindsay Simmons

In 2012, the Department of Labor (DOL) dramatically increased the number of Job Corps Center (JCC) operator contracts set aside for small businesses.  DOL made this decision based solely on “interest” from two or more small businesses.  According to DOL, interest alone is enough to set aside – in this case nearly 80% of the JCC procurements, even though most of these JCCs have been operating successfully under large business incumbents.  Not surprisingly, DOL’s actions resulted in several bid protests that raise a number of important issues regarding not only JCC procurements, but also the entire federal government’s small business set-aside process.

A battle is raging in the courts regarding whether (1) the Workforce Investment Act (WIA) allows the DOL to restrict competition for JCC operator contracts to small businesses only; (2) as part of their set-aside analysis for each individual acquisition, agencies are required to determine if a “fair proportion” of contracts in the industry have already been set aside for small businesses; (3) this “fair proportion” determination is part of a two part process, the other step being a Rule of Two (FAR 19.502-2(b)) determination; and (4) under the Rule of Two, the contracting officer (CO) must consider information regarding responsibility and price reasonableness in order to form a “reasonable expectation” that offers will be obtained from at least two “responsible” small businesses and award will be made at “fair market prices”.   See 15 U.S.C. § 644(a); FAR 19.502-1(a); FAR 19.502-2(b). These questions are precedent-setting for a wide range of federal procurements and, for this reason, the Court of Appeals for the Federal Circuit has been asked to rehear these cases en banc

As discussed in an earlier blog at this cite, Congress recently spoke directly on the purpose and intent of WIA’s procurement scheme:

When evaluating contract renewals or re-bids, due consideration should be provided to the federal investment already made in high-performing incumbent contractors as a part of a full, fair, and open competitive process. As part of this process, the Department of Labor (DOL) should consider documented past performance of student outcomes and cost-effective administration as important factors in Job Corps procurements.   

160 Cong. Rec. H1033 (daily ed. Jan. 15, 2014) (emphasis added).  Thus, Congress expressly interprets WIA as requiring full and open competition, directly contradicting the Federal Circuit’s findings that WIA allows DOL to restrict competition to small businesses only. 

The remaining questions are also of exceptional importance because they go directly to the heart of the Federal Government’s small business set-aside process – a process that affects all federal procurements, not just JCC operations.  The plain language of the Small Business Act and the FAR require agencies to take certain, clearly articulated steps before setting aside an acquisition, namely (1) an agency must make a determination, specific to the acquisition at issue, as to whether setting aside that acquisition for small businesses is in the interest of assuring that a fair proportion of contracts in the industry are placed with small business concerns and (2) the contracting officer must have a reasonable expectation that two or more responsible small businesses will submit offers and the award will be made at fair market prices.  15 U.S.C. § 644(a); FAR 19.502-1(a), 19.502-2(b).  The interpretation and application of these requirements is vital to the Federal procurement process and to the proper use of small business set-asides. 

At this point it is unclear whether or not any amicus curiae (friend of the court) briefs will be submitted by interested parties in support of the Adams petitions for rehearing en banc.  Such petitions are rarely granted, but these cases involve important, precedential issues that should be reconsidered by the Court.

 

Lindsay Simmons is the attorney responsible for the content of this article.

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