SBA’s proposed contracting rule is a mixed bag for small businesses

The Small Business Administration has issued what is arguably one of the most significant proposed rules for small businesses in the past decade.

The proposed rule implements Section 1331 of the Small Business Jobs Act, signed by the president in September 2010. Section 1331 of the Jobs Act requires SBA and OFPP to establish regulations under which federal agencies may set aside orders under multiple-award, indefinite-delivery, indefinitequantity contracts for small business.

But what does all that really mean?

Devon Hewitt is a partner at Protorae Law firm. She gave Chris Dorobek on the DorobekINSIDER program a little behind the scenes knowledge.

Hewitt’s Two Big Takeaways

‘Rule of Two:” The Small Business Act and the Federal Acquisition Regulation require all agencies to reserve acquisitions above the simplified acquisition threshold for small businesses if two or more small businesses can perform the work at a fair market price, also known as the ‘‘rule of two.’’ Set asides are one of the most successful ways for agencies to achieve their small business contracting goals and accounted for nearly half of the $97 billion awarded to small businesses in FY 2009. The requirement to set aside acquisitions for small business under the ‘‘rule of two’’ applies to indefinitequantity, indefinite-delivery contracts. However, because these contracts generally are broad in scope, most small businesses do not have the capability to perform all the types of tasks or provide all the types of goods that might be required during the life of such a contract. In addition, even if a small business was awarded a multiple-award, IDIQ contract, it often did not receive orders under the contract because of the Part 16.5 requirement that agencies allow all contract awardees, including other than small businesses, a ‘‘fair opportunity’’ to participate in the task or delivery order competition.

Section 1331 – was included in the Small Business Jobs Act. Section 1331 specifically provides the authority for agencies to set aside task and delivery order competitions for small businesses and extends that authority to all multiple award IDIQ contracts, including those on the federal supply schedules. Under the proposed rule, agencies must continue to follow the rule of two in setting aside acquisitions at the contract level. If the ‘‘rule of two’’ cannot be satisfied at the contract level, the proposed rule offers an agency three options, all of which are discretionary. The agency may: (1) issue a partial set-aside, (2) ‘‘reserve’’ the requirement or (3) set-aside or preserve the right to set-aside orders against a multiple award contract that was awarded pursuant to full and open competition. If the agency decides not to use one of these three options when it otherwise could, the agency must explain its decision in the contract file.

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Jaime Gracia

The important thing about this rule is that is discretionary, and not mandatory. Therefore, it will be business as usual, awarding large businesses contracts that should go to small businesses, and circumventing the “rule of two,” since market research is required.

Market research is a luxury item, since federal buyers do not have time. Awarding contracts to the Top 100 i the path of least resistance.