Written by: Shauna Weatherly, President of FedSubK, SME Advisor to GovPort
If you are a small business, you’ve probably heard that if there are two small businesses interested in a solicitation, the Government is required to set aside that opportunity for small businesses.
(INSERT BUZZER SOUND HERE)
Not so fast. It’s a little more complicated than that so we are going to break down what the “Rule of Two” means to you and when it comes in and works to your advantage.
Let’s start first with…
The “Rule of Two” is inculcated in Federal procurement via the Federal Acquisition Regulation (FAR) and Title 13 of the Code of Federal Regulations (CFR). In essence it means that, over the micro-purchase threshold (see FAR Subpart 2.101), the Contracting Officer must determine that there is reason to believe that quotes or offers will be obtained from at least two or more responsible small business concerns which are competitive in terms of fair market price, quality, and delivery.
Simplified Acquisitions. Simplified Acquisitions are those opportunities where the total aggregate dollar value does not exceed the Simplified Acquisition Threshold (SAT), presently $250,000. The Federal Acquisition Regulation (FAR) Subpart 19.502-2(a) says that the Contracting Officer shall set aside simplified acquisitions for small businesses unless there is NOT a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of fair market prices, quality, and delivery.
Over the Simplified Acquisition. These actions are anything over the SAT (over $250,000 in total aggregate dollar value). FAR Subpart 19.502-2(b) says that the Contracting Officer shall set aside any acquisition over the simplified acquisition threshold for small business participation when there is a reasonable expectation that-
(1) Offers will be obtained from at least two responsible small business concerns; and
(2) Award will be made at fair market prices.
Total small business set-asides shall not be made unless such a reasonable expectation exists.
Task or Delivery Orders under Multiple Award Contracts. The Office of Management and Budget (OMB) issued a memo titled, “Increasing Small Business Participation on Multiple-Award Contracts” (1/25/2024) requiring that, except for orders citing an exception to competition (as allowed in accordance with FAR Subpart 16.505(b)(2), exceptions to fair opportunity, or agency procedures), that orders over the micro-purchase threshold should be set aside for small business contract holders “…when the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the multiple-award contract that are competitive in terms of market prices, quality, and delivery.”
The Department of Defense (DoD) also issued its own memo (4/19/2024) stating,
a. “Under multiple-award contracts, acquisition teams should consider setting aside orders over the micro-purchase threshold (MPT) for small business contract holders (to include specific small business socio-economic set asides as applicable) when the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the multiple-award contracts that are competitive in terms of market prices, quality, and delivery.”
b. “If there are not at least two small business contract holders that are competitive for the requirement, the contracting officer is reminded to document the basis for not using an order set-aside via a DD Form 2579, "Small Business Coordination Record" in accordance with DFARS 219.201(c)(10)(B), agency procedures and the referenced OMB memorandum.”
Partial Set Asides to Small Businesses. Whan an acquisition is not appropriate for a total small business set-aside, but a logical portion or portions of the work (except for construction) lends itself to a partial small business set-aside, the “Rule of Two” is also applied. FAR 19.502-3(a) mandates that the Contracting Officer shall set aside that portion or portions exclusively for small business participation when—
(1) Market research indicates that a total set-aside is not appropriate (see 19.502-2),
(2) The requirement can be divided into distinct portions,
(3) The acquisition is not subject to simplified acquisition procedures,
(4) Two or more responsible small business concerns are reasonably expected to submit offers on the set-aside portion or portions of the acquisition that are competitive in terms of fair market prices, quality, and delivery,
(5) The specific program eligibility requirements identified in this part apply, and
(6) The solicitation will result in a contract other than a multiple-award contract (see 2.101 for definition of multiple-award contract).”
Going back to the rule, let’s break down what the Contracting Officer’s considerations must be.
Are there two or more responsible small business concerns? The Contracting Officer may look at procurement history, past and current market research using the methods outlined in FAR Part 10 given the scope, complexity, and value of the action in question, and determine if the work falls within that which small businesses can reasonably perform, applying the general standards at FAR Subpart 9.104-1. The general standards must all be met by prospective contractors:
(a) Have adequate financial resources to perform the contract, or the ability to obtain them.
(b) Be able to comply with the required or proposed delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments.
(c) Have a satisfactory performance record. A prospective contractor shall not be determined responsible or nonresponsible solely because of a lack of relevant performance history, except as provided under FAR Subpart 9.104-2.
(d) Have a satisfactory record of integrity and business ethics.
(e) Have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them (including, as appropriate, such elements as production control procedures, property control systems, quality assurance measures, and safety programs applicable to materials to be produced or services to be performed by the prospective contractor and subcontractors).
(f) Have the necessary production, construction, and technical equipment and facilities, or the ability to obtain them.
(g) Be otherwise qualified and eligible to receive an award under applicable laws and regulations.
Small businesses must also be determined capable of meeting the limitations on subcontracting, as required by the type of work performed (i.e., supplies, services, construction).
Are those same small business concerns expected to submit offers? The Contracting Officer may determine if those small businesses have submitted offers in the past for same/similar work and the likelihood they would submit an offer now, to include seeking statements of interest.
These two questions above are why it is SO important that if you are remotely thinking this opportunity is something you could perform as a small business prime or could team with another small business to perform, you MUST answer the RFI. Those RFI responses inform the answers to these two questions.
Will the offer be competitive in terms of fair market price(s), quality, and delivery? If the small business has submitted an offer in the past for same/similar work, the Contracting Officer may choose to look at the competitiveness of the pricing submitted at that time. The Contracting Officer may explore contractor websites, look at current Federal and private sector award info, catalog or market pricing available, or current contract pricing (i.e., GSA Schedule, other agency contracts, etc.).
Are other factors considered?
o In DoD in particular, if only one offer is received in response to a competitive solicitation that the offer but comply with statutory requirements for certified cost or pricing data (see DFARS Clause 252.215-7008 Only One Offer).
o If less than 30 days was provided for the receipt of offers and only one offer was received, the Government may be required to revise the opportunity to promote more competition and resolicit for an additional 30-day period. This could add risk depending on the duration of the funds available for obligation and/or mission requirements.
Did you pick up on those throughout this article? Well, those tell you what the Contracting Officer is directed by the regulation to do versus what they only need to consider doing. “Shall” and “must” are mandatory; “should” and “may” are not.
Those last two are where the “gray area” of contracting comes into play and the Contracting Officer’s judgement is used to determine if they need the info or not.
And this is how the Rule of Two doesn’t always mean that a solicitation will have an acquisition strategy that is a small business set-aside even when two small businesses appear to be interested and qualified. A simple rule isn’t always as simple to follow when subjectivity is part of the process and can come into play. The Contracting Officer doesn’t make these decisions in a vacuum; they have a team of advisors like the Project Manager, agency Small Business Specialist, SBA PCR, and others. Together, they will decide how these factors apply and are met by small businesses as it relates to the acquisition strategy for an opportunity based on their collective knowledge of the industry, the market, and competition pool and its competitiveness.
And as Paul Harvey used to say…”now you know the rest of the story.”
Original Source: https://www.fedsubk.com/post/fedsubk-feature-the-rule-of-two-and-the-rest-of-the-story
