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Set-Asides for Small Businesses: Legal
Requirements and Issues
Kate M. Manuel
Legislative Attorney
Erika K. Lunder
Legislative Attorney
March 9, 2015
Congressional Research Service
7-5700
www.crs.gov
R42981
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Set-Asides for Small Businesses: Legal Requirements and Issues
Summary
It has long been the “declared policy of the Congress” that a “fair proportion” of federal contracts
be awarded to small businesses. In support of this policy, Congress has enacted various statutes
authorizing procuring agencies to conduct competitions in which only small businesses may
compete, or to make noncompetitive (“sole-source”) awards to such firms in circumstances when
similar awards could not be made to other firms.
Federal agencies can award contracts to small businesses by several different methods, depending
upon the value of the contract and the number of small businesses likely to submit offers, among
other factors.
• “Small purchases” valued at between $3,000 and $150,000 are “reserved
exclusively” for small businesses and are generally made using simplified
acquisition procedures (e.g., purchase orders, blanket purchase agreements),
sealed bidding, or contracting by negotiation.
• Contracts whose value exceeds $150,000 can be awarded via sealed bidding or
contracting by negotiation in competitions in which only small businesses may
participate (i.e., “competitive set-asides”), so long as the contracting officer
reasonably expects offers from at least two small businesses, and the award can
be made at fair market price.
• Contracts whose value exceeds $150,000 can, in some cases, be entered into by
negotiating directly with a small business if the contracting officer does not
reasonably expect offers from at least two small businesses.
All the foregoing are authorized under the Small Business Act, which permits federal agencies to
conduct competitive set-asides for small businesses, as well as for specific types of small
businesses (i.e., small disadvantaged businesses (SDBs) participating in the “8(a) Program” (8(a)
firms), Historically Underutilized Business Zone (HUBZone) small businesses, women-owned
small businesses (WOSBs), and service-disabled veteran-owned small businesses (SDVOSBs)).
The Small Business Act also authorizes agencies to make sole-source awards to 8(a) firms,
HUBZone small businesses, SDVOSBs, and WOSBs in certain circumstances. In addition, the
Veterans Benefits, Health Care, and Information Technology Act of 2006, as amended, grants the
Department of Veterans Affairs (VA) additional authority to conduct competitive set-asides for,
and make sole-source awards to, SDVOSBs and other veteran-owned small businesses (VOSBs).
Small business set-asides are of perennial interest to Congress because of their role in effectuating
the congressional policy of assisting small businesses. For example, the 112th Congress enacted
legislation (P.L. 112-239) that expanded agencies’ authority to conduct competitive set-asides for
WOSBs, while the 113th Congress enacted legislation that permits sole-source awards to such
businesses (P.L. 113-291). Interest in the set-aside programs seems likely to continue in the 114th
Congress, in part, because of the Obama Administration’s recent proposal to establish a set-aside
program for “new small businesses and other firms that have limited experience selling to the
Government.” There is also ongoing litigation over agencies’ use (or non-use) of competitive set-
asides in particular procurements. Recent cases have specifically raised questions about whether
the VA is required to use competitive set-asides for SDVOSBs and other VOSBs instead of
making certain purchases through the Federal Supply Schedules. Questions have similarly been
raised about whether and when the Department of Labor is to include other-than-small firms
when setting aside for small businesses procurements for the operation of Job Corps Centers.
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Contents
Introduction ...................................................................................................................................... 1
Legal Authorities Governing Set-Asides ......................................................................................... 4
Small Purchases “Reserved” Under the Small Business Act ..................................................... 4
Competitive Set-Asides and Other Preferences Under the Small Business Act ........................ 7
Small Disadvantaged Businesses Participating in the 8(a) Program ................................... 9
HUBZone Small Businesses ............................................................................................. 11
Women-Owned Small Businesses ..................................................................................... 12
Service-Disabled Veteran-Owned Small Businesses ......................................................... 14
Veterans Benefits, Health Care, and Information Technology Act .......................................... 15
Legal Issues ................................................................................................................................... 17
Implementation of the Rule of Two ......................................................................................... 18
Requirements to Use Small Business Set-Asides .................................................................... 20
Section 15(a) and Its Implementing Regulations .............................................................. 22
2006 Amendments to the Veterans Benefit Act ................................................................. 23
Partial Set-Asides .................................................................................................................... 26
Set-Asides Under ID/IQ Contracts .......................................................................................... 27
Priority of and Among the Set-Aside Programs ...................................................................... 29
Set-Asides Under the Small Business Act ......................................................................... 29
Set-Asides Under the Veterans Benefits Act ..................................................................... 31
Limitations on the Use of Small Business Set-Asides............................................................. 32
Conclusions .................................................................................................................................... 35
Figures
Figure 1. Small Businesses Generally: Preferences Based on Contract Size .................................. 9
Figure 2. 8(a) Participants: Preferences Based on Contract Size ................................................... 11
Figure 3. HUBZone Small Businesses: Preferences Based on Contract Size ............................... 12
Figure 4. Women-Owned Small Businesses: Preferences Based on Contract Size ....................... 14
Figure 5. Service-Disabled Veteran-Owned Small Businesses:
Preferences Based on Contract Size ........................................................................................... 15
Tables
Table 1. Priority Sources for Purchasing Supplies and Services ................................................... 29
Contacts
Author Contact Information........................................................................................................... 35
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Introduction
This report provides an overview of set-asides for small businesses, key legal requirements
governing agencies’ use of set-asides, and recent litigation regarding agencies’ use (or non-use) of
set-asides when conducting particular procurements. The term “set-aside” is commonly used to
refer to a competition in which only small businesses may compete. However, this usage can
obscure the fact that some set-asides involve small purchases that may be made by means of
simplified acquisition procedures that entail less than “full and open competition,” as well as by
the sealed bidding or contracting by negotiation that is more commonly associated with set-asides
of larger contracts. In order to better distinguish between these two categories of procurements,
this report refers to the former as “purchases reserved for small businesses,” and the latter as
“competitive set-asides.” In addition, some, but not all, of the statutory provisions pertaining to
competitive set-asides also authorize agencies to award contracts without competition—by
negotiating directly with a small business—when contracts cannot be set aside for small
businesses (e.g., because offers cannot reasonably be expected from two or more small
businesses), or when certain other conditions are met. Such awards are here referred to as “sole-
source awards.”
Small business set-asides are of perennial interest to Congress because of their role in effectuating
the long-standing
declared policy of the Congress that the Government should aid, counsel, assist, and protect,
insofar as is possible, the interests of small-business concerns in order to preserve free
competitive enterprise, to insure that a fair proportion of the total purchases and contracts or
subcontracts for property and services for the Government (including but not limited to
contracts or subcontracts for maintenance, repair, and construction) be placed with small
business enterprises, to insure that a fair proportion of the total sales of Government property
be made to such enterprises, and to maintain and strengthen the overall economy of the
Nation.1
In support of this policy, Congress has authorized agencies to conduct set-asides and make sole-
source awards to small businesses, among other things. Specifically, with various provisions of
the Small Business Act of 1958,2 as amended, Congress has permitted federal agencies to conduct
competitive set-asides for small businesses,3 as well as for specific types of small businesses (i.e.,
small disadvantaged businesses (SDBs) participating in the “8(a) Program,” Historically
Underutilized Business Zone (HUBZone) small businesses, women-owned small businesses
(WOSBs), and service-disabled veteran-owned small businesses (SDVOSBs)).4 The Small
1 15 U.S.C. §631(a)(1). Similar language was included in the Small Business Act of 1953, which first established the
Small Business Administration (SBA) on a temporary basis. See An Act to Dissolve the Reconstruction Finance
Corporation, to Establish the Small Business Administration, and for Other Purposes, P.L. 83-163, §202, 67 Stat. 232
(July 30, 1953).
2 See An Act to Amend the Small Business Act of 1953, as Amended, P.L. 85-536, §4(a), 72 Stat. 384 (July 18, 1958).
3 See, e.g., 15 U.S.C. §644(a).
4 See, e.g., 15 U.S.C. §637(a) (set-asides for 8(a) participants); 15 U.S.C. §637(m) (set-asides for WOSBs); 15 U.S.C.
§657a (set-asides for HUBZone small businesses); 15 U.S.C. §657f (set-asides for SDVOSBs). All 8(a) participants are
SDBs, but not all SDBs are 8(a) participants. See generally CRS Report R40987, “Disadvantaged” Small Businesses:
Definitions and Designations for Purposes of Federal and Federally Funded Contracting Programs, by Kate M.
Manuel.
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Business Act also authorizes federal agencies to make sole-source awards to 8(a) participants,
HUBZone small businesses, SDVOSBs, and WOSBs in certain circumstances,5 as well as grant
price evaluation adjustment preferences to HUBZone small businesses in unrestricted
competitions.6 In addition, the Veterans Benefits, Health Care, and Information Technology Act of
2006, as amended, grants the Department of Veterans Affairs (VA) additional authority to conduct
competitive set-asides for, and make sole-source awards to, SDVOSBs and other veteran-owned
small businesses (VOSBs).7
Congress has also sought to promote its “declared policy” of assistance to small businesses by
requiring the establishment of government-wide and agency-specific goals for the percentage of
federal contract and/or subcontract dollars awarded to small businesses each year. The President
is statutorily required to establish government-wide goals, which must call for at least 23% of
federal contract dollars to be awarded to small businesses (including 5% of federal contract and
subcontract dollars to WOSBs; 5% to SDBs; 3% to HUBZone small businesses; and 3% to
SDVOSBs).8 Individual agencies, after “consultation” with the Small Business Administration
(SBA), are also statutorily required to set agency-specific goals.9 These goals must represent, “for
that agency, the maximum practicable opportunity” for small businesses to participate in the
contracts awarded by the agency, and the “cumulative annual prime contract goals for all agencies
[must] meet or exceed the annual Governmentwide prime contract goal established by the
President.”10 Set-asides for small businesses constitute one of the primary means by which
agencies may meet their goals for contracting and subcontracting with small businesses.11
However, these goals are not quotas,12 and the set-aside programs do not serve or seek to ensure
that 23% of all federal contract dollars, for example, is awarded to small businesses.
5 See, e.g., 15 U.S.C. §637(a) (8(a) participants); 15 U.S.C. §657a (HUBZone small businesses); 15 U.S.C. §657f
(SDVOSBs); Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015,
P.L. 113-291, §825,—Stat.—(Dec. 19, 2014) (to be codified in 15 U.S.C. §637(m)(7)).
6 See, e.g., 15 U.S.C. §657a(b)(3)(A). An unrestricted competition is a competition in which all potential vendors that
are not excluded from government contracting may compete. Small and other-than-small vendors compete together.
7 See, e.g., P.L. 109-461, 120 Stat. 3431 (Dec. 22, 2006) (codified, in part, at 38 U.S.C. §§8127-8128).
8 See, e.g., 15 U.S.C. §644(g)(1)(A).
9 15 U.S.C. §644(g)(2)(A).
10 15 U.S.C. §644(g)(1)(B).
11 See, e.g., Examining the Rule of Two: Hearings before the Subcommittee on Procurement, Innovation, and Minority
Enterprise Development of the Committee on Small Business, House of Representatives, 100th Cong., 1st sess., May 7
and 13, 1987, at 69-70.
12 See, e.g., DynaLantic Corp. v. U.S. Dep’t of Defense, 885 F. Supp. 2d 237, 244-245 (D.D.C. 2012) (“Congress has
established an ‘aspirational goal’ for procurement from socially and economically disadvantaged individuals, which
includes but is not limited to the Section 8(a) program, of five percent of procurement dollars government wide. ...
Additionally, each federal agency establishes its own goals by agreement between the agency head and the SBA. ...
None of the goals established by Congress or [the Department of Defense] are rigid numerical quotas, and there is no
penalty for failure to meet the goals.”). Quotas for the percentage of contract or subcontract dollars awarded to certain
types of small businesses would raise constitutional issues because firms’ status is based, in part, on race and gender.
Race and gender are “suspect classifications,” and the government would have to show that any challenged programs
which classify individuals on these bases are narrowly tailored to further a compelling government interest, in the case
of race-conscious programs; or are substantially related to important government objectives, in the case of gender-
conscious programs. See, e.g., Adarand Constructors, Inc. v. Peña, 515 U.S. 200 (1995); Craig v. Boren, 429 U.S. 190,
197 (1976). In United States v. Virginia, the Supreme Court required the State of Virginia to provide an “exceedingly
persuasive justification” for its policy of maintaining an all-male military academy. 518 U.S. 515 (1996). It is unclear
whether this standard is in fact more strict than the intermediate scrutiny standard of review that has long applied to
gender classifications.
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The 112th Congress enacted legislation that expands agencies’ authority to conduct competitive
set-asides for WOSBs,13 while the 113th Congress enacted legislation that permits sole-source
awards to such firms.14
Interest in the set-aside programs seems likely to continue in the 114th Congress, in part, because
of the Obama Administration’s recent proposal to establish a set-aside program for “new small
businesses and other firms that have limited experience selling to the Government, but can offer
cutting-edge technology and more creative solutions to address the Government’s needs.”15 There
is also ongoing litigation over agencies’ use (or non-use) of competitive set-asides in particular
procurements. Recent cases have specifically raised questions about whether the VA is required to
use competitive set-asides for SDVOSBs and other VOSBs instead of making certain purchases
through the Federal Supply Schedules.16 Questions have similarly been raised about whether and
when the Department of Labor is to include other-than-small firms when setting aside for small
businesses procurements for the operation of Job Corps Centers.17
The report begins with an overview of the legal authorities governing set-asides and related
contracting preferences for small businesses. Then, it turns to the legal issues, including (1) the
implementation of the “Rule of Two,” which permits or, in some cases, requires that agencies use
set-asides when offers can reasonably be expected from at least two small businesses, and the
award made at a fair price; (2) when agencies may be required to use set-asides for small
businesses; (3) partial set-asides of contracts that cannot be totally set aside for small businesses;
(4) set-asides under certain indefinite-delivery/indefinite-quantity (ID/IQ) contracts (i.e., contracts
that call for the contractor to supply quantities of goods or services that are unknown at the time
of contracting to the government upon the government’s order); (5) priority of and among the set-
aside programs; and (6) limitations on the use of small business set-asides.
13 National Defense Authorization Act for FY2013, P.L. 112-239, §1697, 126 Stat. 2091 (Jan. 2, 2013),.
14 P.L. 113-291, §825,—Stat.—(to be codified in 15 U.S.C. §637(m)(7)).
15 Office of Management and Budget, FISCAL YEAR 2016 BUDGET OF THE U.S. GOVERNMENT 73 (2015). The House
Small Business Committee has indicated that it is “oppose[d to] the establishment of any new set-aside initiatives”
because of its concerns about the Executive’s “inability” to implement preexisting programs for small businesses.
House Committee on Small Business, Views and Estimates of the Committee on Small Business on Matters to be Set
Forth in the Concurrent Resolution on the Budget for Fiscal Year 2016, at 18 (2015) (copy on file with the authors).
The committee also noted that not all firms with “limited experience” selling to the government are small. Id.
16 Kingdomware Techs., Inc. v. United States, 754 F.3d 923 (Fed. Cir. 2014), aff’g, on other grounds, 107 Fed. Cl. 226
(2012) (finding that VA was not required to procure the supplies in question through a set-aside for VOSBs, instead of
through the Federal Supply Schedules). The contractor in this case has petitioned the Supreme Court for review of the
appellate court’s decision. See Kingdomware Techs., Inc. v. United States, No. 14-916, Petition for a Writ of Certiorari
(filed Jan. 29, 2015) (copy on file with the authors). For further discussion of this and related cases, see infra
“Requirements to Use Small Business Set-Asides: 2006 Amendments to the Veterans Benefit Act.”
17 See Adams & Assocs., Inc. v. United States, No. 14-1168C, 2015 U.S. Claims LEXIS 83 (Fed. Cl., Feb. 6, 2015)
(finding that the provisions of the Consolidated Appropriations Act of 2014 (P.L. 113-76) and its Joint Explanatory
Statement regarding the procurement of operators for Job Corps Centers did not “reopen the solicitation” in question—
which had been set-aside for small businesses—and do not “provide a proper basis for a legal challenge”). In particular,
the court construed the Joint Explanatory Statement’s instruction that DOL “should” give “due consideration” to high
performing incumbent contractors, regardless of their size, to be “precatory and directed at policy makers in the
agency.” Id. at *11-*12. Previously, there had been challenges to whether set-asides for Job Corps Centers run afoul of
the Workforce Investment Act (WIA). See infra “Requirements to Use Small Business Set-Asides: Section 15(a) and
Its Implementing Regulations.”
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Legal Authorities Governing Set-Asides
The Small Business Act of 1958, as amended, is the primary authority governing set-asides and
related contracting preferences for small businesses. By its terms, or as implemented by SBA and
the Federal Acquisition Regulatory Council (FAR Council), this act generally provides that
“small purchases” are reserved for small businesses, and authorizes agencies to conduct
competitive set-asides and, in some cases, grant other contracting preferences to small
businesses.18 However, it is important to note that one of the primary regulations implementing,
in part, the Small Business Act—the Federal Acquisition Regulation (FAR)—applies only to the
acquisition of goods and services by executive branch agencies with appropriated funds.19 The
FAR also excludes certain contracts (e.g., those performed overseas) from its requirements
pertaining to small business contracting, as discussed below.20 The Small Business Act does not
expressly contemplate such exclusions. However, agency regulations are generally entitled to
deference so long as Congress has not directly spoken to the precise question at issue, and the
agency’s reasonable interpretation of the statute is consistent with the purposes of the statute.21
“[I]f the statute speaks clearly ‘to the precise question at issue,’” the tribunal “must give effect to
the unambiguously expressed intent of Congress,” regardless of what the agency regulation
provides.22 However, where “the statute is silent or ambiguous with respect to the specific issue,”
the tribunal “must sustain the [a]gency’s interpretation if it is ‘based on a permissible
construction’ of the Act.”23
In addition, Congress has supplemented the provisions of the Small Business Act by enacting
additional legislation requiring the Department of Veterans Affairs (VA) to set aside contracts for
SDVOBs and other VOSBs in certain circumstances.
Small Purchases “Reserved” Under the Small Business Act
Congress amended the Small Business Act in 1978 to address agencies’ use of small businesses
when making “small purchases.”24 Specifically, the act provides that:
18 The Small Business Act technically contemplates other agencies awarding their contracts to the SBA for
subcontracting to SDBs participating in the 8(a) Program. However, in practice, SBA generally delegates its authority
to subcontract with 8(a) firms to other agencies, which then award contracts directly to 8(a) firms. See, e.g., 13 C.F.R.
§124.501(a); Partnership Agreement Between the U.S. Small Business Administration and the U.S. Department of
Defense, Jan. 4, 2013, available at https://www.sba.gov/sites/default/files/files/Department%20of%20Defense.pdf.
19 See, e.g., The Argos Group, B-406040 (Jan. 24, 2012) (finding that HUBZone small businesses must be accorded a
price evaluation preference when the General Services Administration acquires certain leasehold interests in real
property even though such acquisitions are not subject to the FAR on the grounds that the Small Business Act “does not
limit the type of contract to which it applies”). For more on the FAR, including a discussion of how “acquisition,”
“supplies,” “services,” and “appropriated funds” are defined or otherwise construed for purposes of the FAR, see
generally CRS Report R42826, The Federal Acquisition Regulation (FAR): Answers to Frequently Asked Questions, by
Kate M. Manuel et al.
20 See infra note 28 and accompanying text.
21 Chevron, USA v. Natural Resources Defense Council, 467 U.S. 837 (1984).
22 Barnhart v. Walton, 535 U.S. 212, 217 (2002) (quoting Chevron, 467 U.S. at 842-43).
23 Id. at 218 (quoting, in part, Chevron, 467 U.S. at 843).
24 An Act to Amend the Small Business Act and the Small Business Investment Act of 1958, P.L. 95-507, 92 Stat. 1575
(Oct. 24, 1978).
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Each contract for the purchase of goods and services that has an anticipated value greater
than [$3,000] but not greater than [$150,000] shall be reserved exclusively for small business
concerns unless the contracting officer is unable to obtain offers from two or more small
business concerns that are competitive with market prices and are competitive with regard to
the quality and delivery of the goods or services being purchased.25
This provision uses “shall,” which has been construed as indicating mandatory agency action (see
infra “Requirements to Use Small Business Set-Asides”),26 and is generally taken to mean that
agencies must award contracts valued at between $3,000 and $150,000 to small businesses, so
long as the contracting officer is able to obtain offers from at least two small businesses that are
competitive as to price and other terms.27 However, certain regulations implementing this
provision of the Small Business Act effectively narrow its scope. First, Part 19 of the FAR, which
addresses “small business programs,” generally “applies only in the United States or its outlying
areas,”28 which means that certain small contracts awarded and/or performed overseas are not
necessarily awarded to small businesses.29 Similarly, Subpart 8.4 of the FAR, which governs the
use of the Federal Supply Schedules, generally provides that Part 19 of the FAR “does not apply
to BPAs [blanket purchase agreements] or orders placed against Federal Supply Schedule
contracts.”30 (The Schedules are commonly used in purchasing commercial goods and services of
25 15 U.S.C. §644(j)(1). The act gives these figures as $2,500 and $100,000. However, they have been adjusted for
inflation by regulation pursuant to the Ronald W. Reagan National Defense Authorization Act for FY2005. See P.L.
108-375, §807, 118 Stat. 2010-11 (Oct. 28, 2004) (codified at 41 U.S.C. §1908). In certain circumstances, the
thresholds could be greater than those given here. See 48 C.F.R. §13.003(b)(1).
26 See, e.g., Hughes & Sons Sanitation, B-270391 (Feb. 29, 1996) (“Under the simplified acquisition procedures, an
acquisition of services that has an anticipated dollar value exceeding [$3,000] and not exceeding [$150,000] is reserved
exclusively for small business concerns and must be set aside.”) (emphasis added).
27 See, e.g., Danielle Ivory, Big Firms Edge Out Small for Billions in Awards, Bloomberg Gov’t, Nov. 13, 2011
(reporting that “about $4.74 billion, or 45 percent, of more than $10.6 billion targeted for small businesses under
government acquisition rules were won by bigger competitors in the year that ended Sept. 30, 2011.”). Regulations
implementing, in part, this provision of the Small Business Act indicate that the requirement to “reserve” small
purchases for small businesses does “not preclude the contracting officer from awarding a contract to a small business
under the 8(a) Program, HUBZone Program, SDVOSB Program, or WOSB Program.” 48 C.F.R. §19.203(b).
28 48 C.F.R. §19.000(b) (“This part, except for subpart 19.6, applies only in the United States or its outlying areas.
Subpart 19.6 applies worldwide.”). Subpart 19.6 addresses Certificates of Competency (COCs) and determinations of
responsibility. Questions have recently been raised as to whether the regulations providing that Part 19 of the FAR
generally applies only in “the United States or its outlying areas” are consistent with the Small Business Act, which
does not contain such a geographical limitation. But see Latvian Connection Gen. Trading & Constr. LLC, B-408633
(Sept. 18, 2013) (“Given the silence of the Small Business Act with respect to the application of § 644(j)(1) outside the
United States and its outlying areas, we cannot say that the validly-promulgated, long-standing regulation found at FAR
§ 19.000(b) is inconsistent with, or contrary to, the Small Business Act.”).
29 It is not immediately apparent whether Section 19.000(b) is to be construed as referring to procurements conducted
within the United States, or contracts whose principal place of performance is within the United States. Also, questions
have been raised about whether agencies are permitted to take certain actions required by Part 19 of the FAR in
connection with contracts awarded and/or performed outside the United States. But see Maersk Line, Ltd., B-410280
(Dec. 1, 2014) (finding that Part 19 applies to a contract whose place of performance is the Northern Mariana Islands).
This decision could be taken to mean that the place of performance is the salient factor.
30 48 C.F.R. §8.404(a) (“Parts 13 (except 13.303-2(c)(3)), 14, 15, and 19 (except for the requirement at 19.202-
1(e)(1)(iii)) do not apply to BPAs or orders placed against Federal Supply Schedules contracts.”). Section 19.202-
1(e)(1)(iii) addresses “bundling” of contract requirements, or their consolidation into a contract that is likely to be
“unsuitable” for award to a small business due to its size or other factors. But see 48 C.F.R. §8.405-5(a) (providing that
“[a]lthough the preference programs of part 19 are not mandatory,” ordering agencies may set aside orders and BPAs
for small businesses). See also Kingdomware Techs., Inc., B-405533.2 (Nov. 10, 2011) (recognizing that orders under
the Federal Supply Schedules are exempt from “the set-aside requirements in FAR Part 19”).
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the sort that small businesses could potentially supply.)31 In addition, the FAR authorizes agencies
to solicit small purchases on an unrestricted basis if they receive “no acceptable offers from
responsible small business concerns.”32
Agencies may use several different methods in making “small purchases,” which are treated
differently from larger purchases under federal procurement law. With larger purchases, agencies
must generally obtain “full and open competition through the use of competitive procedures,”
which generally means that all responsible sources are permitted to submit bids or offers.33 In
contrast, with small purchases, agencies must generally “promote competition to the maximum
extent practicable,”34 and may rely upon “simplified acquisition procedures.” These procedures
include:
• governmentwide commercial purchase cards, or purchase cards “similar in nature
to ... commercial credit card[s]” issued to authorized personnel for use in
acquiring and/or paying for goods or services;35
• purchase orders, or orders specifying the quantity of goods or services requested
and a date of delivery, among other things;36
• blanket purchase agreements, or “charge accounts” with qualified sources of
supply that are used to fill anticipated repetitive needs for supplies or services;37
• imprest funds (i.e., cash funds of fixed amounts established by an advance of
funds for use periodically in making relatively small cash payments), and third-
party drafts (i.e., agency bank drafts similar to checks);38 and
• Standard Form 44, Purchase Order-Invoice-Voucher, which is “designed
primarily for on-the-spot, over-the-counter purchases of supplies and nonpersonal
services while away from the purchasing office or at isolated [locations].”39
Agencies could potentially use any of these simplified procedures when awarding a contract
“exclusively reserved” for small businesses.40 Alternatively, they could use sealed bidding or
31 See U.S. Gen. Servs. Admin., GSA Schedules, available at http://www.gsa.gov/portal/category/100611.
32 48 C.F.R. §19.502-2(a).
33 10 U.S.C. §2304(a)(1)(A) (procurements of defense agencies); 41 U.S.C. §3301(a)(1) (procurements of civilian
agencies). Full and open competition means that “all responsible sources are permitted to submit sealed bids or
competitive proposals on the procurement.” 41 U.S.C. §107. For more on the competition requirements in federal
contracting, see generally CRS Report R40516, Competition in Federal Contracting: Legal Overview, by Kate M.
Manuel.
34 48 C.F.R. §13.104. This generally entails “considering” the solicitation of at least three sources and, “[w]henever
practicable,” requesting quotations or offers from two sources not included in the previous solicitation. Id.
35 48 C.F.R. §13.001. While governmentwide commercial purchase cards are commonly associated with micro-
purchases (generally valued at or below $3,000), the FAR expressly provides that “[a]gency procedures should not
limit the use of Governmentwide commercial purchase cards to micro-purchases,” but rather should encourage their use
to place orders and/or make payments under other contractual instruments. 48 C.F.R. §13.301(b).
36 See generally 48 C.F.R. §§13.302-1 to 13.302-5.
37 48 C.F.R. §13.303-1(a).
38 48 C.F.R. §13.001.
39 48 C.F.R. §13.306.
40 48 C.F.R. §19.502-5(a).
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contracting by negotiation of the sort generally associated with full and open competition.41 With
sealed bidding, agencies open bids publicly at a specified time and place; evaluate them without
discussions with bidders; and award the contract to the lowest-priced responsible bidder.42 With
contracting by negotiation, in contrast, agencies generally conduct discussions or negotiations
with at least those vendors whose offers fall within the “competitive range” and award the
contract to the offeror whose proposal represents the “best value” for the government considering
price and other factors included in the solicitation.43
Competitive Set-Asides and Other Preferences Under the Small
Business Act
When the value of a contract awarded under the authority of the Small Business Act exceeds the
simplified acquisition threshold (generally $150,000),44 somewhat different rules apply. Larger
contracts are like “small purchases” in that the small business requirements of the FAR generally
do not apply to contracts awarded and/or performed outside the United States, and agencies are
not required to set-aside orders issued under Federal Supply Schedule contracts for small
businesses.45 However, larger purchases differ in that agencies may not use simplified acquisition
procedures, but instead must use either
sealed bidding or contracting by
What Is a Small Business?
negotiation when conducting a
The Small Business Act defines a small business as one that is
competitive set-aside.46 In addition, the
“independently owned and operated”; is “not dominant in its
type of small business involved (e.g.,
field of operation”; and meets any size standards established by
WOSB, SDVOSB) matters significantly
the Administrator of Small Business. The Administrator has
established standards which specify firm size by North
more with larger purchases than with
American Industrial Classification System (NAICS) code and
“small” ones, since the circumstances in
provide, for example, that recreational vehicle dealers are small
which agencies may set aside contracts
if their annual receipts (averaged over three years) are less than
for small businesses (or grant other
$32.5 million, while line-haul railroads are small if they have
preferences) can vary depending upon
fewer than 1,500 employees.
the type of small business involved.
15 U.S.C. §632(a)(1)-(2); 13 C.F.R. §§121.101-121.201.
Section 15(a) of the Small Business Act
of 1958 arguably paved the way for small business set-asides by providing that:
[t]o effectuate the purposes of this Act, small-business concerns within the meaning of this Act
shall receive any award or contract or any part thereof, and be awarded any contract for the
sale of Government property, as to which it is determined by the [Small Business]
41 Id.
42 See 48 C.F.R. §14.101(a)-(e). Agencies are generally required to use sealed bids if (1) time permits the solicitation,
submission, and evaluation of sealed bids; (2) the award will be made on the basis of price or price-related factors; (3)
it is not necessary to conduct discussions with bidders about their bids; and (4) there is a reasonable expectation of
receiving more than one sealed bid. 10 U.S.C. §2304(a)(2)(A)(i)-(iv) (procurements of defense agencies) & 41 U.S.C.
§3301(b)(1)(A)(i)-(iv) (procurements of civilian agencies).
43 48 C.F.R. §§15.000-15.102. The competitive range consists of those proposals having the greatest likelihood of
award based on the factors and significant sub-factors specified in the solicitation.
44 The simplified acquisition threshold can be higher in certain circumstances (e.g., contingency operations, disaster
responses). See 48 C.F.R. §2.101.
45 See supra note 28-31 and accompanying text.
46 48 C.F.R. §19.502-5(a).
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Administration and the contracting procurement or disposal agency (1) to be in the interest of
maintaining or mobilizing the Nation’s full productive capacity, (2) to be in the interest of
war or national defense programs, (3) to be in the interest of assuring that a fair proportion of
the total purchases and contracts for property and services for the Government are placed
with small-business concerns, or (4) to be in the interest of assuring that a fair proportion of
the total sales of Government property be made to small-business concerns.47
By at least 1962, regulations implementing Section 15(a) treated the existence of a certain
number of offerors and pricing as tantamount to a determination that setting aside a procurement
for small businesses is “in the interest of assuring” that small businesses receive a “fair
proportion” of government contracts, among other things.48 Specifically, the 1962 regulations
provided that an acquisition was to be set aside for small businesses when there was a “reasonable
expectation” that offers would be obtained from a “sufficient number of small business concerns
so that awards will be made at reasonable prices.”49 However, other agencies subsequently
developed similar language, which expressly called for contracts to be set aside for small
businesses whenever the contracting officer reasonably expected offers from at least two small
businesses, and the award could be made at fair market price.50 The latter provisions eventually
came to be known as the “Rule of Two” because of the focus on there being at least two small
businesses.
The Rule of Two was incorporated in the FAR when the FAR was promulgated in 1983,51 and
currently appears in both the FAR and SBA regulations. Specifically, Section 19.502-2(b) of the
FAR provides that:
47 P.L. 85-536, §15, 72 Stat. 395 (codified, as amended, at 15 U.S.C. §644(a)). Similar language had been included in
the Small Business Act of 1953. Prior to the establishment of the SBA, the Smaller War Plants Corporation (during
World War II) and the Small Defense Plants Administration (during the Korean War) had been given similar authority
to subcontract certain agency contracts to small vendors. See Act of July 31, 1951, P.L. 82-96, §110, 65 Stat. 131 (July
31, 1951); Small Business Mobilization Act, P.L. 77-603, §4(f), 56 Stat. 351 (June 11, 1942).
48 As the Court of Federal Claims has noted, while most discussions of Section 15(a) emphasize the role of set-asides in
ensuring that small businesses receive a “fair proportion” of government contracts, Section 15(a) also contemplates set-
asides for other purposes, such as maintaining and mobilizing the nation’s productive capacity. See Mgmt. & Training
Corp. v. United States, No. 12-561C, 2012 U.S. Claims LEXIS 1580, at *27-*30 (Nov. 29, 2012).
49 41 C.F.R. §1-1 706-5(a) (procurements of civilian agencies).
50 See, e.g., Examining the Rule of Two, supra note 11, at 4, 37-38 (noting that the Department of the Navy began using
the “Rule of Two” formulation, discussed below, in 1963; the Defense Acquisition Regulation, in 1979; and the
National Aeronautics and Space Administration, in 1982). The at-least-two standard developed because of concerns
that contracting officers interpreted “sufficient number” in differing ways, with some reportedly declining to set aside
contracts for small businesses even when 10 or 12 potential small business offerors could be identified. See, e.g., OMB
Efforts to Repeal the Rule of Two: Hearing Before the Subcommittee on SBA and SBIC Authority, Minority Enterprise,
and General Small Business Problems of the Committee on Small Business, House of Representatives, 99th Cong., 2d
Sess., June 5 and 18, 1986, at 175-76 (1986). This distinction between the “sufficient number” standard and the Rule of
Two has obvious significance in terms of the implementation of set-asides for small businesses. However, from a legal
perspective, the more interesting choice was arguably the agencies’ determination to craft a rule which effectively
provides a “formula” for when and how agencies are to exercise their statutory discretion. In other words, while the
Small Business Act apparently contemplates contracting officers and SBA determining on a contract-by-contract basis
whether a set-aside serves certain purposes, the regulations implementing the act provide for set-asides to occur as a
matter of course whenever a sufficient number of small businesses (or, later, two small businesses) are likely to submit
offers.
51 Dep’t of Def., Gen. Servs. Admin., and Nat’l Aeronautics & Space Admin., Establishing the Federal Acquisition
Regulation, 48 Fed. Reg. 42102 (Sept. 19, 1983). Although promulgated in 1983, the FAR took effect on October 1,
1984. The Rule-of-Two provisions in the FAR were not submitted for public comment prior to their promulgation, and
some commentators have criticized them, in part, on this ground. See, e.g., OMB Efforts to Repeal the Rule of Two,
supra note 50, at 121.
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[t]he contracting officer shall set aside any acquisition over $150,000 for small business
participation when there is a reasonable expectation that: (1) [o]ffers will be obtained from at
least two responsible small business concerns offering the products of different small
business concerns ...; and (2) [a]ward will be made at fair market prices,52
while SBA regulations similarly direct that agencies “shall” set aside any acquisition whose value
exceeds the simplified acquisition threshold (generally $150,000) for small businesses when the
Rule of Two is satisfied.53 This language—and particularly the use of “shall”—has generally been
taken to mean that agencies must set aside acquisitions whenever the Rule of Two is satisfied, as
discussed below. However, even if “shall” is construed to indicate mandatory agency action here,
any set-aside for small businesses under the authority of Section 15(a) and its implementing
regulations would appear to have lower “priority” than set-asides for specific types of small
businesses, as is also discussed below.54
Section 15(a) has historically not been construed as authorizing agencies to make sole-source
awards to small businesses in circumstances when such an award could not otherwise be made
(e.g., single source, urgent and compelling circumstances).55
Figure 1. Small Businesses Generally: Preferences Based on Contract Size
Source: Congressional Research Service, based on 15 U.S.C. §644(a); 48 C.F.R. Subpart 19.5.
* Section 15(a) has historical y not been construed as authorizing agencies to make sole-source awards to smal
businesses in circumstances when such an award could not otherwise be made (e.g., single source).
* * $150,000 is currently the simplified acquisition threshold for most federal procurements, but the simplified
acquisition threshold can be higher in certain circumstances (e.g., contingency operations, disaster responses).
Small Disadvantaged Businesses Participating in the 8(a) Program
Following the authorization of set-asides for small businesses generally, Congress granted
agencies additional authority to set aside contracts for, or grant other contracting preference to,
specific types of small businesses (i.e., small businesses that meet other eligibility requirements
beyond size). The earliest of the programs for a specific type of small businesses was that for
52 48 C.F.R. §19.502-2(b). Before any federal contract may be awarded, the contracting officer must determine that the
contractor is “responsible” for purposes of that contract. See generally CRS Report R40633, Responsibility
Determinations Under the Federal Acquisition Regulation: Legal Standards and Procedures, by Kate M. Manuel.
53 13 C.F.R. §125.2(f)(2)(i).
54 See infra notes 171-172 and accompanying text.
55 See, e.g., 48 C.F.R. Subpart 19.5 (discussing only set-asides for small businesses generally). For more on the seven
circumstances in which agencies may make sole-source awards under the authority of the Competition in Contracting
Act (CICA) of 1984, as amended, see 10 U.S.C. §2304(c)(1)-(7) (procurements of defense agencies) & 41 U.S.C.
§3304(a)(1)-(7) (procurements of civilian agencies); 48 C.F.R. §§6.302-1 to 6.302-7; CRS Report R40516,
Competition in Federal Contracting: Legal Overview, by Kate M. Manuel.
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certain “small businesses owned and controlled by socially and economically disadvantaged
individuals” (“small disadvantaged businesses” (SDBs)).56 With amendments made to the Small
Business Act in 1978, Congress required SBA to establish a “capital development ownership
program” for SDBs, and authorized other agencies to award contracts to SBA for subcontracting
to firms participating in this program (commonly known as the 8(a) Program).57 However, in
practice, particularly recently, SBA has delegated its authority to subcontract to other agencies,
which effectively enter contracts with 8(a) participants in the same way that they enter contracts
with other small businesses.58
The procedures for subcontracting/contracting with 8(a) participants depend upon the anticipated
value of the contract, as well as who owns the 8(a) firm. Section 8(a) establishes a “competitive
threshold”—$4 million ($6.5 million for manufacturing contracts)—and imposes different
requirements upon contracts whose anticipated value is at or below the competitive threshold than
upon those whose anticipated value
What Is an 8(a) Firm?
exceeds the competitive threshold.
8(a) participants must be “unconditional y owned and control ed
• Contracts whose value is at or
by one or more socially and economically disadvantaged
below the competitive
individuals [or groups] who are of good character and citizens of
the United States.” They must also “demonstrate[] potential for
threshold are typically awarded
success,” which generally means that the business has been in
without competition, and may
operation for at least two full years immediately prior to its
be competed among 8(a) firms
application to the 8(a) Program. Members of certain racial and
only with the approval of the
ethnic groups are presumed to be socially disadvantaged,
although other persons are also eligible for the 8(a) Program if
SBA’s Office of Business
they can prove that they are socially disadvantaged. Alaska Native
Development.59
Corporations and Community Development Corporations are
•
deemed to be economically disadvantaged for purposes of the
Contracts whose value exceeds
8(a) Program, but other applicants must show actual economic
the competitive threshold must
disadvantage. This can be done, in part, by producing evidence of
generally be competed
diminished capital and credit opportunities, including personal net
whenever the Rule of Two is
worth of not more than $250,000 at the time of entry into the
satisfied (i.e., the contracting
8(a) Program ($750,000 for continuing eligibility). Individual
owners and businesses may participate in the 8(a) Program for no
officer reasonably expects
more than nine years.
offers from at least two
15 U.S.C. §§636(j)(10) and 637(a); 13 C.F.R. Part 124.
responsible 8(a) firms, and the
award can be made at fair
market price).60
However, if the Rule of Two is not satisfied, or if SBA accepts the requirement on behalf of a
firm owned by an Indian tribe, an Alaska Native Corporation, or, in the case of Department of
Defense procurements, a Native Hawaiian Organization, the agency may make a sole-source
award of a contract whose value exceeds the competitive threshold.61
56 See 15 U.S.C. §637(a); 48 C.F.R. §§19.800-19.812.
57 15 U.S.C. §§636(j)(10), 637(a)(1).
58 See supra note 18.
59 13 C.F.R. §124.506(c).
60 15 U.S.C. §637(a)(1)(D)(i); 13 C.F.R. §124.506(a)(2)(i)-(iii); 48 C.F.R. §19.805-1(a)(1)-(2). For more on
responsibility, see supra note 52.
61 15 U.S.C. §637(a)(1)(D)(i); 13 C.F.R. §124.506(a)(2)(i)-(iii); 48 C.F.R. §19.805-1(a)(1)-(2). Such awards may be
subject to certain conditions, e.g., that the award of the contract is consistent with the firm’s business plan, and would
not result in the firm exceeding the limits on firm value imposed on 8(a) participants. See 15 U.S.C. §637(a)(16)(A)(i)-
(continued...)
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Section 8(a) does not authorize agencies to grant price evaluation preferences to the bids or offers
of SDBs in unrestricted competitions (i.e., competitions in which all firms may compete).62
SDBs, including 8(a) firms, were once eligible for price evaluation preferences under other
authorities.63 However, such authorities have expired or been found unconstitutional, and are no
longer in effect.64
Figure 2. 8(a) Participants: Preferences Based on Contract Size
Source: Congressional Research Service, based on 15 U.S.C. §637(a); 48 C.F.R. Subpart 19.8.
* Noncompetitive awards valued in excess of $4 million ($6.5 million for manufacturing contracts) may only be
made to Native Hawai an Organizations in Department of Defense procurements. Sole-source contracts could
also be awarded to 8(a) firms under other authority than the Small Business Act.
* * $150,000 is currently the simplified acquisition threshold for most federal procurements, but the simplified
acquisition threshold can be higher in certain circumstances (e.g., contingency operations, disaster responses).
HUBZone Small Businesses
The next set-aside program created was that for HUBZone small businesses. Commonly known
as the “HUBZone Act,” Title VI of the Small Business Reauthorization Act of 1997, as amended,
provides that a contract opportunity may be set aside for HUBZone small businesses whenever
the Rule of Two is satisfied (i.e., the contracting officer reas onably expects offers from at least
two responsible HUBZone small businesses, and the award can be made at fair market price).65
(...continued)
(iii); 15 U.S.C. §636(j)(10)(I). It should also be noted that sole-source awards can be made to 8(a) firms under other
authority, such as CICA, in certain circumstances. See supra note 55.
62 A price evaluation preference could involve a reduction in the price of bids or offers by eligible persons. The amount
of the reduction is generally equivalent to a certain percentage of the price of the bid or offer. For example, a 10% price
evaluation preference made to an $110,000 bid would result in the bid being reduced by $11,000 to $99,000. $99,000
would then be used in determining which bid or offer is lowest priced or represents the “best value.”
63 Federal Acquisition Streamlining Act, P.L. 103-355, §7102, 108 Stat. 3368-69 (Oct. 13, 1994) (procurements of
civilian agencies); Department of Defense Authorization Act of 1987, P.L. 99-661, §1207, 100 Stat. 3973-75 (Nov. 14,
1986) (procurements of defense agencies).
64 See Rothe Dev. Corp. v. Dep’t of Defense, 545 F.3d 1023, 1028 (Fed. Cir. 2008) (finding unconstitutional the
authority under which defense agencies granted price evaluation preferences to the bids or offers of SDBs); P.L. 103-
355, §7102 (authority permitting civilian agencies to grant price evaluation preferences to the bids or offers of SDBs
expiring at the end of FY2000). This authority was later extended through the end of FY2003, but was not renewed
thereafter. See Consolidated Appropriations Act, 2001, P.L. 106-554, §503(d), 114 Stat. 2763A-695 (Dec. 21, 2000).
65 For more on responsibility, see supra note 52.
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The act also authorizes sole-source awards to HUBZone small businesses whenever (1) the
business is determined to be responsible with respect to the performance of the contract, and the
contracting officer does not reasonably
expect that two or more HUBZone
What Is a HUBZone Small Business?
businesses will submit offers; (2) the
HUBZone small businesses must generally be at least 51%
anticipated award will not exceed $4
unconditionally and directly owned and controlled by U.S.
million ($6.5 million for manufacturing
citizens and have their principal office in a HUBZone. At least
contracts); and (3) the award can be
35% of their employees must also generally reside in a
made at a fair and reasonable price.66
HUBZone.
A HUBZone is a Historically Underutilized Business (HUB)
In addition, the HUBZone Act authorizes
zone. HUBZone areas include census tracts or non-
agencies to grant price evaluation
metropolitan counties with higher than average unemployment,
or lower than average median household incomes; lands within
preferences of up to 10% to the bids or
Indian reservations; and certain base closure areas.
offers of HUBZone small businesses in
unrestricted competitions.67 This means
15 U.S.C. §632(p); 13 C.F.R. Part 126.
that, when determining which offer has
the lowest price or represents the “best value” for the government, agencies may add up to 10% to
the price of all offers except those offers received from HUBZone or certain other small
businesses.68
Figure 3. HUBZone Small Businesses: Preferences Based on Contract Size
Source: Congressional Research Service, based on 15 U.S.C. §657a; 48 C.F.R. Subpart 19.13.
* Sole-source contracts valued in excess of $4 million ($6.5 million for manufacturing contracts) may be awarded
to HUBZone small businesses under other authority than the Small Business Act.
* * $150,000 is currently the simplified acquisition threshold for most federal procurements, but the simplified
acquisition threshold can be higher in certain circumstances (e.g., contingency operations, disaster responses).
Women-Owned Small Businesses
Although set-asides for women-owned small businesses (WOSBs) were not implemented until
2011, the set-aside program for such firms was the next one created.69 The Small Business
66 15 U.S.C. §657a(b)(2)(A)(i)-(iii) (statutory requirements); 48 C.F.R. §19.1306(a)(1)-(6) (increasing the price
thresholds, among other things). Sole-source awards may also be made to HUBZone small business under other
authority, on grounds not related to their size and status. See supra note 55.
67 15 U.S.C. §657a(b)(3).
68 48 C.F.R. §52.219-4(b)(1)(i)-(ii). See also The Argos Group, B-406040 (Jan. 24, 2012) (finding that HUBZone small
businesses must be accorded a price evaluation preference when the General Services Administration acquires certain
leasehold interests in real property even though such acquisitions are not subject to the FAR on the grounds that the
Small Business Act “does not limit the type of contract to which it applies”).
69 Implementation was delayed by the requirement that set-asides be used only in industries in which women are
(continued...)
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Reauthorization Act of 200070 amended
Section 8(m) of the Small Business Act
What Is a Woman-Owned Small Business?
in a way that SBA has construed as
WOSBs must be at least 51% owned by one or more women,
authorizing agencies to set aside
with the management and daily operations of the business also
control ed by one or more women.
contracts for economically
disadvantaged and other WOSBs in
To be considered economically disadvantaged, a woman’s
certain circumstances. Specifically, as
personal net worth must be less than $750,000 (excluding
ownership interest in the small business and equity interest in
implemented by SBA, Section 8(m)
the primary personal residence).
permits agencies to set aside contracts
for economically disadvantaged WOSBs
15 U.S.C. §632(n); 13 C.F.R. Part 127.
when (1) the “rule of two” is satisfied
(i.e., the contracting officer reasonably expects offers from at least two responsible WOSBs, and
the award can be made at fair market price); and (2) the proposed procurement involves an
industry in which WOSBs are underrepresented.71 It also permits set-asides for other WOSBs
(i.e., those that are not economically disadvantaged) when (1) the Rule of Two is satisfied, and (2)
the proposed procurement involves an industry in which WOSBs are substantially
underrepresented.72 Initially, agencies could only set aside contracts whose value was below $4
(...continued)
underrepresented or substantially underrepresented. SBA’s first proposed rule regarding eligible industries identified
only four: (1) intelligence; (2) engraving and metalworking; (3) furniture and kitchen cabinet manufacturing; and (4)
motor vehicle dealerships. U.S. Small Bus. Admin., Proposed Rule: Women-Owned Small Business Federal Contract
Assistance Procedures, 72 Fed. Reg. 73285 (Dec. 27, 2007) (hereinafter SBA 2007 Proposed Rule). This proposed rule
was widely criticized, including by some Members of Congress, and SBA revised it to include an additional 27
industries. See, e.g., Sens. Snowe, Dole Offer Bill to Overhaul Rule on Women-Owned Small Business Set Asides, 89
Fed. Cont. Rep. 180 (Feb. 19, 2008); Robert Brodsky, SBA Issues New Proposal on Small Business Program, But
Same Questions Remain, Gov’t Exec., Sept. 30, 2008, available at http://www.govexec.com/dailyfed/0908/
093008rb1.htm. However, before the revised rule could be finalized, the U.S. Court of Appeals for the Federal Circuit
issued its decision in Rothe Development Corporation v. Department of Defense, striking down a race-conscious
contracting program on the grounds that there was insufficient evidence of discrimination in the defense industry before
Congress when it created the program. 545 F.3d 1023 (Fed. Cir. 2008). Although gender-conscious programs are
subject to “intermediate” scrutiny, not strict scrutiny like the race-conscious program at issue in Rothe, SBA extended
the comment period on the proposed rule in order to “review[]” how its determinations regarding the industries in
which women were underrepresented might fare under Rothe’s standard for a “strong basis in evidence.” U.S. Small
Bus. Admin., The Women-Owned Small Business Federal Contracting Assistance Procedures: Eligible Industries, 74
Fed. Reg. 1153 (Jan. 12, 2009). Then, in March 2009, Congress enacted the Omnibus Appropriations Act, 2009, which
temporarily prohibited implementation of the proposed rule. P.L. 111-8, Administrative Provisions—Small Business
Administration, §522, 123 Stat. 673 (Mar. 11, 2009). In March 2010, the Obama Administration issued proposed
regulations establishing the infrastructure for the women-owned small business set-aside program and identifying
additional industries in which women are underrepresented or substantially underrepresented. U.S. Small Bus. Admin.,
Women-Owned Small Business Federal Contract Program: Proposed Rule, 75 Fed. Reg. 10030 (Mar. 4, 2010)
(hereinafter SBA 2010 Proposed Rule). These regulations identified 83 industries in which women are underrepresented
or substantially underrepresented. They were finalized on October 7, 2010, and took effect on February 4, 2011. U.S.
Small Bus. Admin., Women-Owned Small Business Federal Contract Program: Final Rule, 75 Fed. Reg. 62258 (Oct. 7,
2010).
70 See P.L. 106-554, tit. VIII, §811, 114 Stat. 2763A-708 (Dec. 21, 2000) (codified at 15 U.S.C. §637(m)).
71 For more on responsibility, see supra note 52.
72 15 U.S.C. §637(m)(2)(A)-(F) & (m)(4). There is an ambiguity in the statute as this last requirement (i.e., that the
procurement involve an industry in which women are underrepresented) cross-references Section 8(m)(3), which
waives the requirement that owners be economically disadvantaged when a contract involves an industry in which
women are substantially underrepresented. A literal reading of the cross-reference suggests that only contracts
involving industries in which women are substantially underrepresented qualify for set-asides. See SBA 2007 Proposed
Rule, supra note 69 at 73286; SBA 2010 Proposed Rule, supra note 69 at 10031-32. However, this is arguably not the
best way to interpret the statute, as SBA explained when it promulgated regulations under the authority of Section
8(m). In these regulations, SBA adopted the position that the statute’s cross-reference to Section 8(m)(3) is a drafting
(continued...)
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million ($6.5 million in the case of manufacturing contracts). However, the 112th Congress
enacted legislation that authorizes set-asides of contracts of any value for WOSBs.73
Subsequently, the 113th Congress enacted legislation that also authorizes agencies to award sole-
source contracts to WOSBs so long as the award can be made at a fair and reasonable price, and
the anticipated value of the contract is below $4 million ($6.5 million for manufacturing
contracts).74
WOSBs are not eligible for price evaluation preferences in unrestricted competitions.
Figure 4. Women-Owned Small Businesses: Preferences Based on Contract Size
Source: Congressional Research Service, based on 15 U.S.C. §637(m); 48 C.F.R. Subpart 19.15.
* Sole-source contracts may be awarded to women-owned smal businesses under other authority than the
Small Business Act.
* * $150,000 is currently the simplified acquisition threshold for most federal procurements, but the simplified
acquisition threshold can be higher in certain circumstances (e.g., contingency operations, disaster responses).
Service-Disabled Veteran-Owned Small Businesses
Finally, the Veterans Benefits Act of 2003 amended the Small Business Act to establish the set-
aside program for service-disabled veteran-owned small businesses (SDVOSBs).75 The 2003
amendments authorize agencies to set aside procurements for SDVOSBs whenever the Rule of
Two is satisfied (i.e., the contracting officer reasonably expects offers from at least two
(...continued)
error, and that the reference should have been to Section 8(m)(4). See SBA 2007 Proposed Rule, supra note 69 at
73286; SBA 2010 Proposed Rule, supra note 69 at 10031-32. Section 8(m)(4) requires SBA to identify industries in
which women are underrepresented, without adding the substantially modifier. The regulations, therefore, distinguish
between economically disadvantaged WOSBs and other WOSBs, authorizing set-asides for economically
disadvantaged WOSBs in industries in which they are underrepresented and for other WOSBs only in industries in
which they are substantially underrepresented. 48 C.F.R. §19.1505(b)-(c). SBA reasoned that if the cross-reference
was read as written, the requirement that SBA indentify industries in which women are underrepresented in Section
8(m)(4) and the waiver for industries with substantial underrepresentation in Section 8(m)(3) “would arguably be
rendered inoperative or contradictory,” as well as unsupported by the legislative history. See SBA 2010 Proposed Rule,
supra note 69 at 10031; SBA 2007 Proposed Rule, supra note 69 at 73286. The SBA further noted that absent
“corrective legislation clarifying the confusing cross-references” there will be “some degree of uncertainty” about
“whether Section 8(m) effectively authorizes appropriate set-asides in industries where [WOSBs] are merely
underrepresented rather than substantially underrepresented.” SBA 2007 Proposed Rule, supra note 69 at 73286.
73 P.L. 112-239, §1697, 126 Stat. 2091.
74 P.L. 113-291, §825,—Stat.—(to be codified in 15 U.S.C. §637(m)(7)). Sole-source awards may also be made to
WOSBs under other authority, on grounds not related to their size and status. See supra note 55.
75 See P.L. 108-183, tit. III, §308, 117 Stat. 2662 (Dec. 16, 2003) (codified at 15 U.S.C. §657f); 48 C.F.R. §19.1405.
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responsible SDVOSBs, and the award
can be made at fair market price).76
What Is a Service-Disabled Veteran-Owned
Small Business?
The 2006 amendments also authorize
sole-source awards to SDVOSBs when
An SDVOSB must be at least 51% unconditionally and directly
owned and controlled by one or more service-disabled
(1) the contracting officer does not
veterans. A veteran is a person who served “in the active
reasonably expect that two or more
military, naval, or air service, and who was discharged or
SDVOSBs will submit offers; (2) the
released therefrom under conditions other than dishonorable.”
anticipated award will not exceed $3.5
A disability is service-related when it “was incurred or
million ($6 million for manufacturing
aggravated ... in [the] line of duty in the active military, naval, or
air service.”
contracts); and (3) the award can be
made at a fair and reasonable price.77
15 U.S.C. §632(q); 38 U.S.C. §101; 13 C.F.R. Part 125, Subparts
A and B.
SDVOSBs are not eligible for price
evaluation preferences in unrestricted competitions.
Figure 5. Service-Disabled Veteran-Owned Small Businesses:
Preferences Based on Contract Size
Source: Congressional Research Service, based on 15 U.S.C. §657f; 48 C.F.R. Subpart 19.14.
* Sole-source contracts valued in excess of $3.5 million ($6 million for manufacturing contracts) may be awarded
under other authority than the Smal Business Act.
* * $150,000 is currently the simplified acquisition threshold for most federal procurements, but the simplified
acquisition threshold can be higher in certain circumstances (e.g., contingency operations, disaster responses).
Veterans Benefits, Health Care, and Information Technology Act
Enacted three years after the Veterans Benefits Act, discussed above, the Veterans Benefits,
Health Care, and Information Technology Act of 2006 created another set-aside program for
veteran-owned small businesses (VOSBs).78 However, unlike the program for SDVOSBs under
the Small Business Act, which applies to procurements government-wide, this program is limited
to procurements of the Department of Veterans Affairs (VA), and veterans who are not disabled
are eligible to participate. Additionally, under this program, VOSBs must have their eligibility
76 15 U.S.C. §657f(b). For more on responsibility, see supra note 52.
77 15 U.S.C. §657f(a)(1)-(3) (statutory requirements); 48 C.F.R. §19.1406(a) (increasing the price thresholds). Sole-
source awards may also be made to SDVOSBs under other authority, on grounds not related to their size and status..
See supra note 55.
78 P.L. 109-461, 120 Stat. 3431 (Dec. 22, 2006) (codified, in part, at 38 U.S.C. §§8127-8128). The same definitions of
“veteran,” “disability,” and “small business” that are used under the Small Business Act apply here.
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verified by VA.79 They may not self-certify as to their eligibility as they can for the SDVOSB set-
aside program under the Small Business
Act.80
Key Difference Between the Set-Aside Programs
Under the Veterans Benefits Act and the Small
The 2006 act authorizes the VA to set
Business Act
aside procurements for VOSBs, as well
•
The Veterans Benefits Act applies only to the
as make sole-source awards to them, in
procurements of VA, while the Small Business Act applies
order to reach VA’s goals for contracting
to the procurements of all federal agencies.
and subcontracting with VOSBs.81
•
The Veterans Benefits Act authorizes set-asides and sole-
Specifically, contracts whose value is
source awards for VOSBs, as well as for SDVOSBs. The
less than $150,000 may be awarded on a
Small Business Act authorizes only set-asides and sole-
set-aside or sole-source basis at the
source awards for SDVOSBs.
contracting officer’s discretion.82
•
Set-asides for SDVOSBs are within agencies’ discretion
Contracts valued in excess of $150,000
under the Small Business Act, while the VA is generally
must generally be awarded via a set-
required by the Veterans Benefits Act to set-aside
contracts for SDVOSBs (although it could retain discretion
aside if the contracting officer has a
not to set-aside procurements for smal businesses in
reasonable expectation that at least two
particular circumstances).
VOSBs will submit offers, and the award
•
Firms must be listed in a database (the VetBiz Vendor
can be made at a fair and reasonable
Information Pages) maintained by the VA to be eligible for
price “that offers best value to the United
contracting preferences under the Veterans Benefits Act,
States.”83 However, sole-source awards
while they may self-certify as to their eligibility for
of contracts valued in excess of
preferences under the Small Business Act.
$150,000 can be made if (1) the
contracting officer determines that the business is a responsible source with respect to the
performance of the contract;84 (2) the anticipated price of the contract (including options) does
not exceed $5 million; and (3) the award can be made at a fair and reasonable price “that offers
best value to the United States.”85
79 See 38 U.S.C. §8127(e) (“A small business concern may be awarded a contract under this section only if the small
business concern and the veteran owner of the small business concern are listed in the database of veteran-owned
businesses maintained by the Secretary under subsection (f).”). See also A1 Procurement, JVG, B-404618.3 (July 27,
2011) (finding that GAO has jurisdiction to review a protest challenging a contracting officer’s determination that a
protester was not listed in VA’s VetBiz database as being eligible for a set-aside award under the 2006 amendments).
80 See supra “Service-Disabled Veteran-Owned Small Businesses.”
81 38 U.S.C. §8127(a)(1)(A). The 2006 act requires the Secretary to “establish a goal for each fiscal year for
participation in Department contracts (including subcontracts)” by VOSBs. The Secretary is also required to establish a
separate goal for the participation of SDVOSBs in agency contracts and subcontracts. 38 U.S.C. §8127(a)(1)(A).
However, the latter goal can be no less than the government-wide goal for the percentage of contract and subcontract
dollars awarded to SDVOSBs given in Section 15(g)(1) of the Small Business Act (currently 3%), while the former
goal is within the Secretary’s discretion. See 38 U.S.C. §8127(a)(2)-(3).
82 38 U.S.C. §8127(b).
83 38 U.S.C. §8127(d). The requirement that an award at fair and reasonable price also “offer[] best value to the United
States” is unique to the program under the Veterans Benefits, Health Care, and Information Technology Act. However,
it is unclear whether this additional requirement would make any difference in the circumstances in which set-asides
and sole-source awards are used.
84 For more on responsibility, see supra note 52.
85 38 U.S.C. §8127(c)(1)-(3). See Crosstown Courier Serv., Inc., B-406336 (Apr. 23, 2012) (finding that there was no
requirement that the VA conduct market research to determine if the procurement should be set aside for small
businesses because the act grants the VA authority to use “noncompetitive procedures” for small purchases).
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Under the 2006 act, awards to SDVOSBs have “priority” over awards to VOSBs, which, in turn,
have precedence over awards to other small businesses, as discussed below.86
The 2006 act does not authorize price evaluation preferences for the bids or offers of SDVOSBs
or VOSBs.
Legal Issues
Legal questions about small business set-asides have arguably become more common in recent
years, particularly since the Government Accountability Office (GAO) issued its 2008 decision in
International Program Group, Inc., recommending that set-asides for HUBZone small businesses
be given “precedence” over set-asides for SDVOSBs because the statute and regulations
governing set-asides for HUBZone small businesses, at that time, used “shall,” and “shall”
indicates mandatory action.87 Prior to International Program Group, GAO had issued decisions
indicating that agencies should have considered set-asides in certain circumstances,88 and GAO
and the federal courts had even found that HUBZone set-asides were mandatory when the Rule of
Two was satisfied.89 Nonetheless, notwithstanding such decisions, at least some agencies viewed
themselves as retaining discretion to select which set-aside program to use (e.g., so as to
maximize their performance vis-à-vis particular small business contracting goals). In particular,
prior to GAO’s 2008 decision, SBA had taken the position that agencies could determine whether
to use HUBZone set-asides in specific procurements,90 and the FAR Council had proposed
amending the FAR expressly to provide that “[t]here is no order of precedence among the 8(a),
HUBZone, and SDVOSB programs.”91
86 38 U.S.C. §8127(i)(1)-(4).
87 B-400278; B-400308 (Sept. 19, 2008).
88 See, e.g., DNO Inc., B-406256, B-406256.2 (Mar. 22, 2012) (“Contracting officers generally are required to set aside
for small business all procurements exceeding $150,000 if there is a reasonable expectation of receiving fair market
price offers from at least two responsible small business concerns.”); Metasoft, LLC, B-402800 (July 23, 2010)
(“Under FAR sect. 19.502-2(b), a procurement with an anticipated dollar value of more than [$150,000] must be set
aside for exclusive small business participation when there is a reasonable expectation that offers will be received from
at least two responsible small business concerns and that award will be made at a fair market price.”).
89 See, e.g., Contract Mgmt., Inc. v. Rumsfeld, 291 F. Supp. 2d 1166, 1174-75 (D. Haw. 2003) (finding that the
HUBZone Act unambiguously required set-asides for HUBZone small businesses whenever the Rule of Two was
satisfied, in part, because of its use of the word “shall”), aff’d, 2006 U.S. App. LEXIS 648 (9th Cir. Haw., Jan. 11,
2006); SWR, Inc., B-294266 (Oct. 6, 2004) (interpreting the FAR implementation of the HUBZone Act to require that
acquisitions valued above the simplified acquisition threshold be set aside for HUBZone small businesses if the Rule of
Two was satisfied because the FAR used “shall”). The district court in Contract Management had similarly noted that
the FAR and SBA regulations implementing the HUBZone Act used the word “shall.” See 291 F. Supp. 2d at 1174-75.
90 See, e.g., U.S. Small Bus. Admin., Small Business Size Regulations; Government Contracting Programs; HUBZone
Program: Proposed Rule, 67 Fed. Reg. 3826, 3832 (Jan. 28, 2002) (“[I]f the contracting activity has met 0% of its
HUBZone goals and has met its 8(a) goals, then the contracting officer should [set aside the procurement for HUBZone
small businesses].”).
91 Dep’t of Defense, Gen. Servs. Admin., Nat'l Aeronautics & Space Admin., Federal Acquisition Regulation: FAR
Case 2006-034, Socioeconomic Program Parity: Proposed Rule, 73 Fed. Reg. 12699, 12699 (Mar. 10, 2008) (proposing
to amend the FAR to reflect SBA’s view that there is parity among the programs for various types of small businesses,
discussed above). This proposed rule was not finalized as a result of decisions by the U.S. Court of Federal Claims
adopting GAO’s interpretation of the HUBZone Act, which made the view that there was parity among the set-aside
programs for various types of small businesses difficult to maintain. However, Congress subsequently amended the
Small Business Act to remove some of the language that GAO and the court had relied upon in finding that HUBZone
set-asides have precedence, and the FAR Council finalized a similar “parity” regulation in 2012. See Dep’t of Defense,
(continued...)
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By rejecting the view that agencies retained discretion to determine whether to use a HUBZone
set-aside when the Rule of Two was satisfied, GAO’s decision in International Program Group
and related decisions in 2008-2010 appear to have prompted greater scrutiny of the statutory and
regulatory language pertaining to small business set-asides and, specifically, provisions that could
potentially be construed as requiring agencies to use—or not use—set-asides in particular
procurements. There has also been increased interest in implementation of the Rule of Two since
any requirement that agencies set aside contracts for small businesses is generally contingent
upon the contracting officer reasonably expecting offers from at least two small businesses, and
the award being made at fair market price.
Implementation of the Rule of Two
As discussed above, under the Rule of Two, contracting officers are generally only authorized (or,
in some cases, required) to set aside an acquisition for small businesses if they reasonably expect
that offers will be received from at least two responsible small businesses, and the contract can be
awarded at fair market price.92 In making these determinations (i.e., whether offers may be
expected from at least two small businesses, fair market price), contracting officers engage in
market research, or the process of “collecting and analyzing information about capabilities within
the market to satisfy agency needs.”93 However, the FAR’s guidance on conducting market
research is arguably limited,94 and agencies are generally permitted to use any “reasonable
method” to determine the availability of small businesses.95 Permissible measures include
considering prior procurement history, market surveys, and advice from the agencies’ small
business specialists and technical personnel.96 On the other hand, agency market research efforts
have been found to have been insufficient when the set-aside determination was based on
outdated or incomplete information, or on an unreasonably limited search of the potential small
business market.97
In determining the availability of potential small business offerors, the question is not just the
existence of the requisite number of firms (i.e., at least two), but also their ability to perform,98
which can depend, in part, upon firms’ current obligations under other contracts.99 In addition, the
(...continued)
Gen. Servs. Admin., & Nat’l Aeronautics & Space Admin., Federal Acquisition Regulation: Socioeconomic Program
Parity, 77 Fed. Reg. 12930 (Mar. 2, 2012) (codified, in part, at 48 C.F.R. §19.203(a) (“There is no order of precedence
among the 8(a) Program ..., HUBZone Program ..., Service-Disabled Veteran-Owned Small Business (SDVOSB)
Procurement Program ..., or the Women-Owned Small Business (WOSB) Program ....”).
92 See supra note 52 and accompanying text.
93 48 C.F.R. §2.101.
94 See generally 48 C.F.R. Part 10.
95 KNAPP Logistics Automation, Inc., B-406303 (Mar. 23, 2012).
96 See, e.g., Raven Servs. Corp., B-243911 (Aug. 27, 1991).
97 See, e.g., McSwain & Assocs., Inc.; Shel-Ken Properties, Inc.; Elaine Dunn Realty, B-271071; B-271071.2; B-
271071.3; B-271071.4; B-271071.5; B-271071.6; B-271071.7; B-271071.8; B-271071.9 (May 20, 1996); Info.
Ventures, Inc., B-294267 (Oct. 8, 2004).
98 See, e.g., Am. Med. Equip. Co., B-407113, B-407113.2 (Nov. 8, 2012); Info. Ventures, Inc., B-279924 (Aug. 7,
1998).
99 See, e.g., Adams & Assocs., Inc. v. United States, 109 Fed. Cl. 340, 357 (2013), aff'd on other grounds, 741 F.3d 102
(Fed. Cir. 2013) (specifically noting a “relatively limited pool of small businesses” expressing interest in certain
contracts); The Protective Group, Inc., B-310018 (Nov. 18, 2007).
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receipt of multiple responses from small businesses during the course of market research does not
necessarily mean that a small business set-aside must be used.100
“Responsible” Small Businesses
Contracting officers would appear to have some discretion in determining, based upon their
market research, whether at least two responsible businesses are capable of performing. The word
responsible is generally a term of art when used in reference to federal contractors, indicating that
the contractor: (1) has adequate financial resources to perform, or the ability to obtain them; (2) is
able to comply with the required or proposed delivery or performance schedule; (3) has a
satisfactory performance record; (4) has a satisfactory record of integrity and business ethics; (5)
has the necessary organization, experience, accounting and operational controls, and technical
skills, or the ability to obtain them; (6) has the necessary production, construction, and technical
equipment and facilities, or the ability to obtain them; and (7) is otherwise qualified and eligible
to receive an award under applicable laws and regulations.101 However, agencies do not have to
make an actual determination of responsibility with respect to prospective small business offerors
when determining whether the Rule of Two is satisfied.102 Rather, they must make an “informed
business judgment” that there are at least two small businesses expected to submit offers which
are capable of performing.103
Fair Market Price
Contracting officers appear to have similar discretion in determining whether they can reasonably
expect an award at fair market price. The FAR defines fair market price, for purposes of the small
business programs, as “a price based on reasonable costs under normal competitive conditions
and not on lowest possible cost,”104 and prescribes two methods of assessing it. One method is
used when considering a set-aside for 8(a) firms; the other, when considering set-asides for non-
8(a) firms.
• With set-asides under the 8(a) program, fair market price is generally estimated
using cost or price analysis and considering commercial prices for similar
products and services, available in-house cost estimates, data submitted by SBA
or the contractor, and data obtained from other agencies.105
100 See, e.g., Belleville Shoe Mfg. Co., Altama Delta Corp., Wellco Enterprises, Inc., B-287237; B-287237.2; B-
287237.3 (May 17, 2001).
101 48 C.F.R. §9.104-1. For more on responsibility, see generally CRS Report R40633, Responsibility Determinations
Under the Federal Acquisition Regulation: Legal Standards and Procedures, by Kate M. Manuel.
102 See, e.g., Six3 Sys., Inc., B-404885.2 (Oct. 20, 2011) (“[I]n making set-aside decisions, agencies need not make
either actual determinations of responsibility or decisions tantamount to determinations of responsibility with regard to
prospective offerors; they need only make an informed business judgment that there are small businesses expected to
submit offers that are capable of performing.”).
103 See, e.g., KNAPP Logistics Automation, Inc., B-406303 (Mar. 23, 2012) (finding that a contracting officer’s set-
aside determination met this “informed business judgment” standard when it was based, in part, on the conclusion that
a debriefing with the firm to discuss deficiencies with its proposal under a prior solicitation would be sufficient to
permit the firm to offer an acceptable proposal this time around).
104 48 C.F.R. §19.001.
105 48 C.F.R. §§19.202-6(b), 19.807. For a new requirement, or one without a satisfactory procurement history, the
procuring activity must use a price or cost analysis that takes into account prevailing market conditions; commercial
prices for similar products or services; or data submitted by SBA or obtained from other agencies. 13 C.F.R. §124.511.
(continued...)
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• With set-asides for WOSBs, SDVOSBs, HUBZone small businesses, and other
small businesses, fair market price is determined using the price analysis
techniques articulated in FAR Section 15.404-1(b).106 These generally provide for
the contracting officer to obtain uncertified data on the prices at which the same
or similar items were sold, and then determine whether that data is adequate for
evaluating the price’s reasonableness.107 Permitted price analysis techniques for
determining a reasonable price include comparing the offerors’ proposed prices,
or comparing the prices to historical prices paid for the same or similar items.108
However, regardless of whether the contemplated set-aside is for 8(a) firms or other small
businesses, the focus is upon whether there is a reasonable expectation of an award at a fair
market price, not upon whether the contracting officer is actually assured of such a price.109
Moreover, in making this determination, a contracting officer may reasonably rely upon such
things as information concerning prior procurements,110 and the expectation that there will be
adequate price competition.111 For example, GAO has found that it was reasonable for an agency
to expect an award at fair market price when it had considered information on prior procurements
which showed that small businesses had successfully performed at reasonable prices; conducted
market research that indicated two incumbent small businesses and a third firm, at a minimum,
intended to compete for the requirement; and received expressions of interest from other small
businesses.112
Requirements to Use Small Business Set-Asides
When a statute or regulation authorizing set-asides for small businesses uses the word “shall,” it
could potentially be construed as requiring agencies to set aside particular procurements for small
businesses if the Rule of Two is satisfied, or other conditions are met. “Shall” has long been
viewed as indicating “mandatory intent,” unless its context indicates otherwise,113 and courts and
commentators have historically applied this principle to the three statutory and regulatory
provisions which use “shall” when referring to small business set-asides. These provisions
include (1) Section 15(a) of the Small Business Act, which authorizes set-asides for small
(...continued)
For other requirements, the procuring activity must base the price estimate on recent award prices adjusted to ensure
comparability. Id.
106 48 C.F.R. §19.202-6(a).
107 48 C.F.R. §15.404-1(b)(1).
108 48 C.F.R. §15.404-1(b)(2). If the contracting officer determines these methods would not produce a reasonable price
(e.g., because there is insufficient information available), then other permissible methods include comparison with
competitive published price lists, or independent government cost estimates; and comparison of proposed prices with
prices obtained through market research for the same or similar items. See id.
109 See Nat’l Linen Serv., B-285458 (Aug. 22, 2000).
110 See Six3 Sys., Inc., B-404885.2 (Oct. 20, 2011) (contracting officer reasonably relied on prospective offerors’
general history of providing fair and reasonable pricing on other contracts, as well as their specific history with a
similar contract).
111 48 C.F.R. §15.404-1(b)(2)(i); KNAPP Logistics Automation, Inc., B-406303 (Mar. 23, 2012); Nat’l Linen Serv., B-
285458 (Aug. 22, 2000). See also 48 C.F.R. §15.403-1(c)(1) (defining adequate price competition).
112 See Nat’l Linen Serv., B-285458 (Aug. 22, 2000).
113 See 1A Sutherland Statutes and Statutory Construction, §25:4 (Norman J. Singer ed., 2002) (“Unless the context
otherwise indicates the use of the word ‘shall’ ... indicates a mandatory intent.”).
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businesses generally; (2) Section 19.502-2 of the FAR, which implements, in part, Section 15(a)
of the Small Business Act; and (3) the Veterans Benefits, Health Care, and Information
Technology Act of 2006, in its provisions authorizing competitive set-asides for SDVOSBs and
VOSBs. However, in practice, the extent of the preference for small businesses under these
authorities may not be as broad as one might expect on the view that “shall” indicates mandatory
agency action. As discussed below, the FAR exempts certain procurements conducted through the
programs for various types of small businesses (e.g., WOSBs, SDVOSBs) from the requirements
pertaining to set-asides for small businesses generally, and a federal court recently suggested that
the Veterans Benefits Act uses “shall” within a context which leaves the VA with at least some
discretion as to whether to use set-asides in particular procurements.
The provisions of the Small Business Act authorizing set-asides for 8(a) firms, WOSBs, and
SDVOSBs and their implementing regulations, in contrast, all use “may,”114 and have not been
construed as indicating mandatory agency action.115 Those authorizing set-asides for HUBZone
small businesses previously used “shall” and were construed to mean that agencies were required
to use a HUBZone set-aside whenever the Rule of Two was satisfied.116 However, the 111th
Congress amended the HUBZone Act by removing, in part, the language that GAO and the Court
of Federal Claims relied upon in reaching this conclusion in a series of decisions issued in 2008-
2010.117
114 See, e.g., 15 U.S.C. §637(m)(2) (“In accordance with this subsection, a contracting officer may restrict competition
[to WOSBs]”); 15 U.S.C. §657f(b) (“In accordance with this section, a contracting officer may award contracts on the
basis of competition restricted to [SDVOSBs] ...”).
115 See, e.g., DGR Assocs. v. United States, 94 Fed. Cl. 189, 195 (2010) (“A contracting officer’s decision to set aside a
contract opportunity under the 8(a) program is discretionary.”); Contract Mgmt., 291 F.2d at 1176 (noting that, while
Section 8(a) of the Small Business Act mandates competition among 8(a) firms in certain circumstances, it leaves to
agency discretion the initial offer and acceptance of contracts into the 8(a) Program). It should be noted, however, that
once a requirement has been procured through the 8(a) Program, it generally cannot be procured from a non-8(a) source
without SBA’s consent. 13 C.F.R. §124.504(d). But see K-LAK Corp. v. United States, 98 Fed. Cl. 1 (2011) (rejecting
a challenge to an agency’s determination to procure through the Federal Supply Schedules services it had previously
procured through the 8(a) Program, in part, on the grounds that the regulations governing withdrawal and modification
of small business set-asides have not been identified as exceptions to the general rule that purchases off the Federal
Supply Schedules are exempt from small business set-asides).
116 These decisions relied heavily (but not exclusively) upon the use of “shall” in the statute governing set-asides for
HUBZone small businesses, and the use of “may,” or other discretionary language, in the statutes governing set-asides
for other types of small businesses. GAO and the court construed “shall” to indicate mandatory agency action, and
“may” to indicate discretionary agency action, and concluded that mandatory agency actions took precedence over
discretionary ones. See, e.g., DGR Assocs., 94 Fed. Cl. at 208 (“The word ‘shall’ is considered the ‘language of
command’ and is presumptively mandatory.”); Mission Critical Solutions v. United States, 91 Fed. Cl. 386, 404 (2010)
(“The word ‘shall’ is ordinarily ‘[t]he language of command.’”); DGR Assocs., B-402494 (May 14, 2010) (“[T]he plain
language of the statute authorizing the HUBZone program is mandatory” because it uses “shall.”); Mission Critical
Solutions, B-401057 (May 4, 2009) (“We have interpreted this language [i.e., the use of ‘shall’] to mean that a
HUBZone set-aside is mandatory where the enumerated conditions are met.”); Int’l Program Group, B-400278, B-
400308 (Sept. 19, 2008) (describing the use of “shall” in the HUBZone Act and its implementing regulations as
“mandatory”). For a more thorough discussion of these cases, see generally archived CRS Report R40591, Set-Asides
for Small Businesses: Recent Developments in the Law Regarding Precedence Among the Set-Aside Programs and Set-
Asides Under Indefinite-Delivery/Indefinite-Quantity Contracts, by Kate M. Manuel.
117 Small Business Jobs Act, P.L. 111-240, §1347(b)(1), 124 Stat. 2547 (Sept. 27, 2010) (changing the “shall” in the
HUBZone Act to “may”).
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Section 15(a) and Its Implementing Regulations
Section 15(a) of the Small Business Act and its implementing regulations, including Section
19.502-2 of the FAR, all use “shall,” and the regulations, in particular, have been viewed by many
tribunals and commentators as requiring set-asides for small businesses whenever the Rule of
Two is satisfied. For example, GAO has repeatedly opined that contracting officers are “required”
to set aside procurements whose value exceeds the simplified acquisition threshold when the Rule
of Two is satisfied, or that such procurements “must” be set-aside.118 The rationale for such
assertions is not always articulated, but would appear to be the use of “shall” in Section 19.502-2
of the FAR. However, GAO, in particular, often follows any statement that set-asides are
“required” or “must” be used with a further statement that the determination that there is a
reasonable expectation that offers will be received from two or more responsible small business
concerns, and that award will be made at a fair market price, is a “matter of business judgment
within the contracting officer’s discretion, and we will not sustain a protest challenging the
determination absent a showing that it was unreasonable.”119 In short, this means that, while set-
asides for small businesses under Section 15(a) may be seen as “mandatory” in certain
circumstances, this requirement is contingent upon a determination (i.e., that the Rule of Two is
satisfied) that contracting officers are seen as having broad discretion in making.120
In addition, the FAR provisions implementing Section 15(a) have effectively created certain
exceptions to this requirement. Specifically, Subsection 19.203(c) of the FAR states that:
For acquisitions of supplies or services that have an anticipated dollar value exceeding the
simplified acquisition threshold ..., the contracting officer shall first consider an acquisition
for the small business socioeconomic contracting programs (i.e., 8(a), HUBZone, SDVOSB,
or WOSB programs) before considering a small business set-aside.121
In other words, the “requirement” to set aside acquisitions for small businesses generally does not
preclude setting aside acquisitions for 8(a) firms, WOSBs, SDVOSBS, or HUBZone small
118 See, e.g., DNO Inc., B-406256, B-406256.2 (Mar. 22, 2012) (“Contracting officers generally are required to set
aside for small business all procurements exceeding $150,000 if there is a reasonable expectation of receiving fair
market price offers from at least two responsible small business concerns.”); Metasoft, LLC, B-402800 (July 23, 2010)
(“Under FAR sect. 19.502-2(b), a procurement with an anticipated dollar value of more than [$150,000] must be set
aside for exclusive small business participation when there is a reasonable expectation that offers will be received from
at least two responsible small business concerns and that award will be made at a fair market price.”).
119 Am. Med. Equip. Co., B-407113, B-407113.2 (Nov. 8, 2012). See also North Shore Med. Labs., Inc., B-310747
(Feb. 6, 2008).
120 Some commentators have further suggested that the “requirement” to set aside contracts for small businesses under
Section 15(a) only applies when it has been determined that a set-aside meets one of the “interests” articulated in
Section 15(a) (i.e., maintaining or mobilizing the nation’s productive capacity, war or national defense programs,
assuring that a “fair proportion” of government contracts and subcontracts be awarded to small businesses, assuring
that a “fair proportion” of total sales of government property be made to small businesses). See, e.g., Examining the
Rule of Two, supra note 11, at 61 (expressing the view that the Rule of Two applies only after the decision to set aside
an acquisition is made under 19.501-1 of the FAR, and determines the extent of the set-aside, not whether there will be
a set-aside); OMB Efforts to Repeal the Rule of Two, supra note 50, at 34, 140 (noting that contracting officers have
“broad discretion” under Section 15(a) to determine when a set-aside is appropriate, and that the Rule of Two comes
into play only after it is determined that a set-aside meets the government’s interest in maintaining or mobilizing the
nation’s productive capacity, among other things). However, this view does not appear to have been adopted by any
court, and the regulations implementing, in part, Section 15(a) expressly state that having placed a “large percentage of
previous contracts for the required item(s) ... with small business concerns” is not, in itself, sufficient cause for not
setting aside an acquisition. 48 C.F.R. §19.502-6(a).
121 48 C.F.R. §19.203(c).
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businesses. Similarly, the FAR expressly provides that agencies must generally “consider” sole-
source awards to 8(a) firms, SDVOSBs, and HUBZone small businesses prior to setting aside an
acquisition for small businesses generally.122 [The FAR Council has not yet promulgated
regulations implementing the provisions of the FY2015 National Defense Authorization Act that
authorize sole-source awards for WOSBs.]123
These “exceptions” are not expressly provided for in the Small Business Act, although an
argument could be made that they are within the FAR Council’s authority since the FAR Council
established the requirement that contracts be set aside for small businesses when the Rule of Two
is satisfied. They could also perhaps be said to be consistent with the act in that Congress
intended there to be set-asides for specific types of small businesses, and this intent would be
difficult to realize if agencies had to use set-asides in which any small businesses could
participate whenever they reasonably expected offers from at least two small businesses.
Nonetheless, the existence of such “exceptions” highlights the differences between Section 15(a)
and its implementing regulations. Specifically, Section 15(a) requires that small businesses
receive any contract, or part thereof, which SBA and the procuring agency determine is in the
interest of assuring that a fair proportion of federal contracts are awarded to small businesses,
among other things;124 it does not require that agencies conduct competitions in which only small
businesses may compete in every procurement where the Rule of Two is satisfied.
2006 Amendments to the Veterans Benefit Act
The Veterans Benefits, Health Care, and Information Technology Act of 2006 amended the
Veterans Benefits Act to provide that the VA “shall” set aside contracts whose value exceeds the
simplified acquisition threshold (generally $150,000) for SDVOSBs or VOSBs whenever the
Rule of Two is satisfied.125 The VA has generally interpreted the 2006 amendments to mean that it
is required to use set-asides for SDVOSBs or VOSBs in such circumstances, amending its
regulations in 2009 to provide that:
the contracting officer shall set-aside an acquisition for competition restricted to SDVOSB
concerns [or VOSBs, in certain circumstances] upon a reasonable expectation that
(1) [o]ffers will be received from two or more eligible SDVOSB [or VOSB] concerns; and
(2) [a]ward will be made at a fair and reasonable price.126
122 48 C.F.R. §19.800(e) (8(a) firms); 48 C.F.R. §19.1306(a) (HUBZone small businesses); 48 C.F.R. §19.1406(a)
(SDVOSBs).
123 See supra note 74 and accompanying text.
124 See supra note 48 for a discussion of the other purposes of set-asides, according to Section 15(a) of the Small
Business Act.
125 See 38 U.S.C. §8127(d) (“Except as provided in subsections (b) and (c), for purposes of meeting the goals under
subsection (a), and in accordance with this section, a contracting officer of the Department shall award contracts on the
basis of competition restricted to [VOSBs] if the contracting officer has a reasonable expectation that two or more
[VOSBs] will submit offers and that the award can be made at a fair and reasonable price that offers best value to the
United States.”). Subsection (b), in turn, authorizes contracting officers to use “other than competitive procedures” in
awarding contracts whose value is below the simplified acquisition threshold, while Subsection (c) permits sole-source
awards of contracts whose value is between the simplified acquisition threshold and $5 million when the Rule of Two
is not satisfied. See 38 C.F.R. §8127(b) & (c).
126 48 C.F.R. §§819.7004(a), 819.7005(a).
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However, the VA also construed the 2006 amendments as permitting it to purchase goods and
services through the Federal Supply Schedules, instead of through a set-aside for SDVOSBs and
VOSBs, even though the Rule of Two is satisfied. The VA did so, in part, because of the long-
standing exemption of orders placed through the Schedules from the FAR’s small business
requirements, previously discussed.127
Beginning in 2011, protesters challenged certain purchases that the VA proposed to make through
the Schedules, arguing that the 2006 amendments and the VA regulations implementing them
removed VA’s discretion to purchase goods and services through the Schedules when the Rule of
Two was satisfied. Key to the protesters’ argument was the use of “shall” in the 2006 amendments
and VA regulations.128 The protesters also likened the 2006 amendments to the HUBZone Act,
which, prior to its amendment in 2010, GAO and the Court of Federal Claims had construed as
requiring set-asides for HUBZone small businesses whenever the Rule of Two was satisfied.129
GAO sided with the protesters in a series of eighteen bid protest decisions issued in 2011-2012.130
GAO did so, in large part, because it construed the 2006 amendments to the Veterans Benefits Act
as unambiguously requiring the VA to set aside contracts for SDVOSBs and VOSBs whenever
the Rule of Two was satisfied since they used the word “shall.”131 Thus, GAO found that VA’s
interpretation to the contrary was not entitled to deference,132 and that the VA could not rely upon
127 Dep’t of Veterans Affairs, VA Acquisition Regulation: Supporting Veteran-Owned and Service-Disabled Veteran-
Owned Small Businesses, 74 Fed. Reg. 64619, 64624 (Dec. 8, 2009) (rejecting a commentator’s suggestion that the VA
Acquisition Regulation (VAAR) be clarified to indicate that VA’s contracting programs for SDVOSBs and VOSBs do
not encompass orders placed through the Schedules on the grounds that this change is unnecessary, and the “procedures
in the FAR will continue to apply to VA [Schedules] task/delivery orders”). Because VA’s interpretation here was
articulated in the preamble to a regulation, instead of in the regulation itself, the court afforded it a lesser degree of
deference when reviewing it than that contemplated under Chevron. See Kingdomware Techs., 107 Fed. Cl. at 243.
128 Kingdomware Techs., 107 Fed. Cl. at 238-239.
129 Id. at 239.
130 For a listing of all these cases, see Gov’t Accountability Office, GAO Bid Protest Annual Report to Congress for
Fiscal Year 2012, Nov. 13, 2012, available at http://www.gao.gov/products/GAO-13-162SP. The earliest of the
decisions was GAO’s October 11, 2011, decision in Aldevra, which underlies much of the discussion below. It is
important to note, however, that after the Court of Federal Claim’s decision in Kingdomware, the GAO announced it
would no longer hear protests which allege only that the VA improperly used the Federal Supply Schedules instead of a
small business set-aside on the grounds that GAO cannot provide such protesters with “meaningful relief.”
Kingdomware Techs.—Reconsideration, B-407232.2 (Dec. 13, 2012) (noting that because VA had declined to
implement GAO’s recommendations and the court had disagreed with GAO’s interpretation, GAO could provide no
relief to protesters). While GAO is not bound by the court’s decision, it also cannot direct executive branch action in
the same way that a court can because of the separation of powers doctrine. See, e.g., Ameron, Inc. v. U.S. Army Corps
of Eng’rs, 809 F.2d 979, 986 (3d Cir. 1986) (noting that the separation of powers doctrine would be violated if GAO, as
a legislative branch agency, were to interfere impermissibly with an executive branch agency’s performance of its
assigned functions, or assume a function more properly entrusted to an executive branch agency).
131 Aldevra, B-405271; B-405524 (Oct. 11, 2011) (“The provisions of both the VA Act and the VAAR are unequivocal;
the VA ‘shall’ award contracts on the basis of competition restricted to SDVOSBs when there is a reasonable
expectation that two or more SDVOSBs will submit offers and the award can be made at a fair and reasonable price.”).
See also Aldevra, B-406205 (Mar. 14, 2012) (“We find that the plain language of 38 U.S.C. § 8127(d) mandates that
VA ‘shall’ conduct its procurements using an SDVOSB (or VOSB) set-aside when there is a reasonable expectation
that two or more SDVOSB (or VOSB) concerns can meet the requirement at a reasonable price.”); Kingdomware
Techs., B-405727 (Dec. 19, 2011) (similar).
132 Aldevra, B-405271; B-405524 (Oct. 11, 2011). See also Aldevra, B-406205 (Mar. 14, 2012) (“In our view, the VA
has not yet proffered an interpretation to which we can properly defer.”). In the March 14 decision, GAO also noted
that this was the first time the VA had raised the argument that the 2006 amendments were effectively goal-setting
provisions, and that the VA was seeking Chevron deference for a rulemaking that it had not performed. The court that
ultimately deferred to VA’s interpretation, as discussed below, relied not on the precedent of Chevron, but on other
(continued...)
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Section 8.404(a) of the FAR as a justification for purchasing items from the Federal Supply
Schedules.133 As previously noted, Section 8.404(a) of the FAR expressly provides that the
provisions in Part 19 of the FAR regarding small business set-asides are generally inapplicable to
purchases made through the Schedules.134 However, in GAO’s view, the FAR applies only to
procurements conducted under the Small Business Act, not to procurements conducted under the
2006 amendments to the Veterans Benefits Act.135
Then, on November 27, 2012, the Court of Federal Claims issued its decision in Kingdomware
Technologies, Inc. v. United States, wherein the court “respectfully disagree[d] with the GAO’s
interpretation” of the 2006 amendments.136 The court found that, notwithstanding the use of
“shall,” the 2006 amendments did not unambiguously require the VA to employ set-asides for
VOSBs instead of the Federal Supply Schedules whenever the Rule of Two is satisfied.137 Rather,
the court viewed the 2006 amendments as essentially “goal-setting” provisions, which left the VA
with at least some discretion in determining when it will use set-asides to meet its goals for
contracting with VOSBs.138 The court also found that the VA had permissibly exercised this
discretion by providing that the VA may purchase goods or services that could be obtained from
VOSBs through the Federal Supply Schedules.139 In particular, the court noted that the Schedules
have long been exempt from the small business set-aside requirements of Part 19 of the FAR, and
“Congress can be presumed to be ... knowledgeable about existing law pertaining to legislation it
enacts.”140
Subsequently, in a decision issued on June 3, 2014, the majority of a three-judge panel of the U.S.
Court of Appeals for the Federal Circuit affirmed the lower court’s decision in Kingdomware,
albeit on different grounds than those relied upon by the lower court.141 According to the majority
of the Federal Circuit, the VA is “required” to set aside contracts for VOSBs only “for purposes of
meeting the [annual] goals” for contracting with VOSBs which the Veterans Benefits Act requires
(...continued)
cases addressing informal agency interpretations. See infra note 139 and accompanying text.
133 Aldevra, B-405271; B-405524(Oct. 11, 2011).
134 See supra note 30 and accompanying text.
135 Aldevra, B-405271; B-405524 (Oct. 11, 2011) (“[T]he FAR language implementing the 2003 [Veterans Benefits]
Act—and exempting the [Schedules] program (among other programs)—from its requirements—has no application to
the statute at issue here.”).
136 Kingdomware Techs., 107 Fed. Cl. at 244.
137 Id., at 238-243.
138 Id., at 239. The court also noted that the 2006 amendments were silent as to the Federal Supply Schedules,
suggesting that the VA retained discretion as how use of the Schedules is to be reconciled with the amendments’
preferences for VOSBs. Id. at 239-240. In addition, it noted language in the legislative history which it construed as
suggesting that the 2006 amendments were intended to allow, but not require, set-asides for VOSBs. Id. at 240.
139 Id., at 242-244. While the court found that VA’s interpretation lacked the “formality” of regulations and, thus, was
not entitled to Chevron deference, it was still entitled to some deference because (1) the interpretation had remained
consistent over time, and reflected a uniform approach within the agency; (2) the interpretation was not directly in
conflict with the 2006 amendments or the VAAR; (3) the basis of the interpretation was clear; and (4) the interpretation
reflected the traditional relationship between small business set-asides and the Federal Supply Schedules. Id. at 243-
244.
140 Id. at 241 (internal citations omitted).
141 754 F.3d at 924. In particular, the majority of the appellate court differed from the district court in viewing the
provisions of the Veterans Benefits Act as unambiguous. Id. at 931. The district court, in contrast, had viewed the
statute as ambiguous, and found that VA’s interpretation was thus entitled to deference. See supra note 137 and
accompanying text.
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the VA to establish.142 The majority reached this conclusion, in part, because it viewed the set-
asides as a “tool” for meeting VA’s goals,143 and reasoned that a mandatory “tool” for achieving
the goals would be inconsistent with the discretion that Congress expressly granted the agency in
setting the goals.144 One judge dissented, however, because he viewed the Veterans Benefits Act
as unambiguously requiring VA to set aside contracts for small businesses when the Rule of Two
is satisfied.145 A petition for the Supreme Court review of the appellate decision is pending.146
Partial Set-Asides
Set-asides can generally be total, involving the reservation of the entire contract for small
businesses, or partial, involving the reservation of certain requirements (i.e., the goods and/or
services needed by the agency) under the contract.147 Partial set-asides have historically been seen
as “mandatory” when a total set-aside cannot be used because the statute and regulations
authorizing them state that a partial set-aside “shall” be used under certain conditions.148 These
conditions are, however, arguably somewhat stringent, particularly when coupled with the general
limitations on the applicability of Part 19 of the FAR, discussed previously (i.e., generally not
applicable to contracts awarded and/or performed outside the United States, or orders under the
Federal Supply Schedules).149 First, contracts for construction are not subject to partial set-
asides.150 Second, such set-asides may generally only be used when: (1) a total set-aside is
inappropriate; (2) the requirement is “severable” into two or more economic production runs or
reasonable lots; (3) at least one small business is expected to have the technical competence and
productive capacity to satisfy the set-aside portion of the requirements at fair market price; (4) the
acquisition is not subject to the simplified acquisition procedures, discussed above; and (5) it is
not reasonably expected that only two concerns—one large and one small—with the capability to
perform will tender offers.151
142 754 F.3d at 933-934.
143 Id. at 934 (characterizing set-asides and other contracting preferences under the Veterans Benefits Act as “tools”
that Congress provided to VA to ensure it meets the goals that it is required by statute to establish).
144 Id. at 931. The majority was particularly concerned that the interpretation advanced by Kingdomware would, in its
view, fail to give effect to the statutory language which states that set asides are to be used “for purposes of meeting the
goals” required to be set under the act. Id. at 933. The majority also noted that Kingdomware’s proposed interpretation
would also result in VA continuing to set aside contracts for VOSBs “even after it has met its goals.” Id.
145 Id. at 934-938. The dissenting judge also viewed the statutory language as unambiguous. Id. at 934. However, he
departed from the majority in viewing the statutory language regarding set asides “for purposes of meeting the goals”
as “[p]refatory language [that] is introductory in nature and does nothing more than explain the general purpose for the
Rule of Two mandate.” Id. at 936.
146 See supra note 16 and accompanying text.
147 But see 48 C.F.R. §19.502-5(a) (simplified acquisition procedures cannot be used with partial set-asides).
148 15 U.S.C. §644(a) (“To effectuate the purposes of this chapter, small-business concerns ... shall receive any award
or contract or any part thereof, ...”) (emphasis added); 48 C.F.R. §19.502-3(a) (“The contracting officer shall set aside
a portion of an acquisition, except for construction, for exclusive small business participation when ...”) (emphasis
added).
149 See supra notes 28-30 and accompanying text.
150 48 C.F.R. §19.502-3(a).
151 48 C.F.R. §19.502-3(a)(1)-(5). Agencies may, however, proceed with a partial set-aside when offers are expected
from only two firms—one large and one small—if the head of the contracting activity authorizes this in a specific case.
48 C.F.R. §19.502-3(a)(5).
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In particular, the requirement that the goods and/or services being procured be “severable” could
potentially preclude the use of a partial set-aside when these goods and/or services are “so
integrally related that only a single source can reasonably perform the work.”152 Decisions not to
partially set aside acquisitions have also been upheld when an agency determined that having
multiple vendors performing the work could increase the risks of performance, e.g., by making
efforts to standardize computer systems more complicated, or less likely to succeed;153 by
increasing costs to the users;154 or by leading to inconsistent results.155 The fact that an agency
makes multiple awards of a contract, or issues multiple orders under a contract, does not, in itself,
prove that requirements are severable,156 and there is no requirement that a partial set-aside
include a certain portion of the agency’s requirements.157 On the other hand, a partial set-aside
may be found to be improper where the set-aside portion is not of a sufficient quantity to be
economically feasible.158
Set-Asides Under ID/IQ Contracts
Congress amended the Small Business Act in 2010 to expressly authorize set-asides of orders
under multiple-award indefinite-delivery/indefinite-quantity (ID/IQ) contracts, among other
things. Sometimes also known as task order/delivery order (TO/DO) contracts, ID/IQ contracts
are contracts for services or goods that do not “procure or specify a firm quantity of supplies
(other than a minimum or maximum quantity),” but rather “provide[] for the issuance of orders
for the delivery of supplies during the period of the contract.”159 A multiple-award ID/IQ contract
is one awarded to multiple vendors, each of whom is generally eligible to compete for task or
delivery orders issued under the contract.160
Specifically, pursuant to the 2010 amendments, agencies may:
(1) set aside part or parts of a multiple award contract for small business concerns, including
the subcategories of small business concerns …;
(2) notwithstanding the fair opportunity requirements under section 2304c(b) of title 10,
United States Code, and section 303J(b) of the Federal Property and Administrative Services
Act of 1949 (41 U.S.C. 253j(b)), set aside orders placed against multiple award contracts for
small business concerns, including the subcategories of small business concerns …; and
152 Metasoft, LLC, B-402800 (July 23, 2010). See also Vox Optima, LLC, B-400451 (Nov. 12, 2008) (noting that the
“interrelationship of the tasks” determines, in part, whether the requirements are severable).
153 Id.
154 EAI Corp., B-283129 (Oct. 7, 1999).
155 Id.
156 Metasoft, LLC, B-402800 (July 23, 2010) (multiple orders); Vox Optima, LLC, B-400451 (Nov. 12, 2008) (multiple
awards).
157 Belleville Shoe Mfg. Co., Altama Delta Corp., Wellco Enterprises, Inc., B-287237; B-287237.2; B-287237.3 (May
17, 2001).
158 Aalco Forwarding, Inc. et al., B-277241.16 (Mar. 11, 1998).
159 48 C.F.R. §16.501-1.
160 There are certain exceptions to this rule, including for orders that must be placed with a particular contractor to meet
a minimum guarantee under a contract. See generally 10 U.S.C. §2304c(b)(1)-(4) (procurements of defense agencies)
& 41 U.S.C. §4106(c)(1)-(4) (procurements of civilian agencies).
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(3) reserve 1 or more contract awards for small business concerns under full and open
multiple award procurements, including the subcategories of small business concerns.161
The authority to set aside orders “[n]otwithstanding the fair opportunity requirements” is arguably
particularly important, since federal law otherwise generally requires agencies to give all vendors
holding a multiple-award contract a “fair opportunity to be considered” for orders valued in
excess of $3,000,162 and an agency could potentially be found to have breached its contract with
the vendor by failing to provide such an opportunity.163
It is important to note, though, that the statutory and regulatory provisions governing set-asides of
orders under ID/IQ contracts use “may,” not “shall,”164 and GAO recently construed them to
mean that agencies are not required to set aside such orders for small businesses (or apply the
Rule of Two in determining whether to use a set-aside).165 Prior to the 2010 amendments, GAO
had issued an earlier decision which had found that orders issued under at least some ID/IQ
contracts were subject to “mandatory” set-asides pursuant to Section 19.502-2 of the FAR on the
grounds that Section 19.502-2 purports to apply to “any acquisition over $150,000,” and orders
constitute acquisitions.166 However, the FAR has been amended since the earlier GAO decision
161 P.L. 111-240, §1331, 124 Stat. 2541 (Sept. 27, 2010) (codified at 15 U.S.C. §644(r)).
162 See, e.g., 41 U.S.C. §4106(c) (“When multiple contracts are awarded under section 4103(d)(1)(B) or 4105(f) of this
title, all contractors awarded the contracts shall be provided a fair opportunity to be considered, pursuant to procedures
set forth in the contracts, for each task or delivery order in excess of [$3,000] that is to be issued under any of the
contracts, unless (1) the executive agency’s need for the services or property ordered is of such unusual urgency that
providing the opportunity to all of those contractors would result in unacceptable delays in fulfilling that need; (2) only
one of those contractors is capable of providing the services or property required at the level of quality required
because the services or property ordered are unique or highly specialized; (3) the task or delivery order should be
issued on a sole-source basis in the interest of economy and efficiency because it is a logical follow-on to a task or
delivery order already issued on a competitive basis; or (4) it is necessary to place the order with a particular contractor
to satisfy a minimum guarantee.”).
163 Appeal of MCC Constr. Co., A.S.B.C.A. No. 57400, 2012-2 B.C.A. ¶ 35,106 (2012) (finding that the procuring
agency had breached a multiple-award contract that provided all vendors a fair opportunity to compete for orders under
the contract by setting aside an order for small businesses). This contract was awarded under the authority of statutory
provisions that have since been repealed, not the Small Business Act, and it appears to have been awarded prior to the
enactment of the Small Business Jobs Act. However, the decision arguably confirmed what some commentators had
suggested was a possibility (i.e., a finding of breach if any agency complied with a requirement to set aside orders for
small business). See, e.g., Steven W. Feldman & Raymond Fioravanti, Contract Dispute or Bid Protest? The Delex
Systems Dilemma, 39 Pub. Cont. L.J. 483 (2010).
164 See, e.g., 48 C.F.R. §19.502-4 (“In accordance with section 1331 of P.L. 111-240 (15 U.S.C. 644(r)) contracting
officers may, at their discretion (a) [w]hen conducting multiple-award procurements using full and open competition,
reserve one or more contract awards for any of the small business concerns identified in 19.000(a)(3) ...; (b) [s]et aside
part or parts of a multiple-award contract for any of the small business concerns identified in 19.000(a)(3) ...; or (c)
[s]et aside orders placed under multiple-award contracts for any of the small business concerns identified in
19.000(a)(3).”). Both the SBA regulations and the FAR include orders placed under Federal Supply Schedule contracts
among the orders that are subject to set-asides for small businesses. See 13 C.F.R. §125.1(k)(1); 48 C.F.R. §8.405-5(a).
165 Edmond Scientific Co., B-410179; B-410179.2 (Nov. 12, 2014).
166 Delex Sys., Inc., B-400403 (Oct. 8, 2008). GAO’s decision here focused on orders placed under non-Federal Supply
Schedules contracts, and the General Services Administration (GSA) responded to the Delex decision by stating that
GSA did not view it as applying to orders placed under Schedules contracts. See GSA Memorandum from David A.
Drabkin, Senior Procurement Executive, to All GSA Contracting Activities, October 28, 2008), quoted in Arnold &
Porter LLP, GAO’s Delex Decision and GSA’s Response: The Clash of Titans, available at
http://www.arnoldporter.com/resources/documents/CA_GAOsDelexDecision&GSAsResponse_012609.pdf. GAO
ultimately reached a similar conclusion in a subsequent decision. See Kingdomware Techs., Inc., B-405533.2 (Nov. 10,
2011) (recognizing that orders under the Federal Supply Schedules are exempt from “the set-aside requirements in FAR
Part 19”). The GAO’s logic in Delex appears to have been largely adopted by the Court of Federal claims in a later
decision, although the Armed Service Board of Contract Appeals has rejected the view that orders necessarily
(continued...)
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and, as amended, clearly states that “contracting officers may, at their discretion,” set aside orders
under multiple-award ID/IQ contracts.167 Thus, GAO’s earlier decision is generally seen to have
been “overturned” by the 2010 legislation and its implementing regulations, although some
commentators have questioned whether this was Congress’s intent.168
Priority of and Among the Set-Aside Programs
The question of whether there is “precedence” or “priority” among the set-aside programs has
been raised periodically. For example, it factored in GAO’s and the court’s consideration of
whether HUBZone set-asides are mandatory when the Rule of Two is satisfied, as discussed
previously.169 It has also been raised in other contexts, including in discussions of what priority
small business set-asides generally have as compared to other procurement preferences.
Set-Asides Under the Small Business Act
The FAR, in particular, currently has several provisions that address the priority of small business
set-aside programs implemented under the authority of the Small Business Act vis-à-vis other
procurement vehicles and as between themselves. Perhaps foremost among these is Subpart 8.002
of the FAR, which provides that agencies “shall satisfy requirements for supplies and services
from or through the sources ... listed [in Table 1] in descending order of priority.”170
Table 1. Priority Sources for Purchasing Supplies and Services
Supplies Services
Agency inventories
Services on the Procurement List maintained
by the Committee for Purchase from People
Excessa from other agencies
Who Are Blind or Severely Disabled (i.e.,
Federal Prison Industries
AbilityOne)
Supplies on the Procurement List maintained
Mandatory Federal Supply Schedules
by the Committee for Purchase from People
Optional Use Federal Supply Schedules
Who Are Blind or Severely Disabled (i.e.,
AbilityOne)
Federal Prison Industries or commercial
sources
Wholesale supply programs, such as the
stock program of the General Services
Administration
(...continued)
constitute acquisitions. See Global Computer Enters. v. United States, 88 Fed. Cl. 350, 499-50 n.121 (2009); Appeal of
MCC Constr. Co., A.S.B.C.A. No. 57400, 2012-2 B.C.A. ¶ 35,106 (2012).
167 48 C.F.R. §19.502-4(c). The SBA regulations similarly provide that the “contracting officer may state in a
solicitation or resulting multiple award contract” that orders are to be set aside. 13 C.F.R. §125.2(e)(6)(ii). The
contracting officer had made such a statement in the contract at issue in Edmond Scientific because the contract was
issued prior to the 2010 amendments.
168 See, e.g., Steven Koprince, Task Orders: Small Business Set-Asides Not Required, Says GAO, Nov. 25, 2014,
available at http://smallgovcon.com/gaobidprotests/task-orders-small-business-set-asides-not-required-says-gao/;
Patrick Rothwell, The “Rule of Two” for Orders Placed Against Multiple Award Contracts: The Other Shoe Has
Dropped, Dec. 12, 2015 (copy on file with the authors).
169 See supra notes 88-89 and accompanying text.
170 48 C.F.R. §8.002(a)(1)-(2).
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Supplies Services
Mandatory Federal Supply Schedules
Optional-use Federal Supply Schedules
Commercial sources
Source: Congressional Research Service, based on 48 C.F.R. §8.002(a)(1)-(2).
a. Excess property means “property under the control of a federal agency that the head of the agency
determines is not required to meet the agency’s needs or responsibilities.” 40 U.S.C. §102(3).
Many, if not all, of these priorities are expressly incorporated into Part 19 of the FAR (e.g.,
AbilityOne having priority over small business set-asides).171 However, the priority afforded to
Federal Prison Industries (FPI) in the purchase of goods is particularly noteworthy because, while
FPI has priority over “commercial sources,” including small businesses, agencies are also
required to use “competitive procedures” whenever FPI has a “significant market share” (i.e.,
more than 5%).172 “Competitive procedures” include small business set-asides,173 and agencies
must allow FPI to participate whenever competitive procedures are used.174 Thus, agencies could
conduct set-asides for small businesses in which FPI may compete, and bids or offers from FPI
would not necessarily be subject to the same requirements (e.g., compliance with the limitations
on subcontracting) as those from small businesses.175
The FAR further provides that, although there is no priority among the set-asides for various
types of small businesses, set-asides for particular types of small businesses take precedence over
those for small businesses generally.176 In other words, agencies can elect whether to use a set-
aside for 8(a) firms, WOSBs, SDVOSBs, or HUBZone small businesses in particular
circumstances. (An agency could, for example, opt to set aside a particular acquisition for
WOSBs because its performance on the goals for contracting and subcontracting with WOSBs
was lower than its performance vis-à-vis its other goals.) In contrast, agencies must at least
“consider” set-asides for 8(a) firms, WOSBs, SDVOSBs, or HUBZOne small businesses before
using a set-aside for small businesses generally. Similarly, the FAR also provides that agencies
171 See, e.g., 48 C.F.R. §19.502-1(b) (noting that the requirement to set aside contracts for small businesses generally
does not apply to “purchases from required sources of supply under Part 8” of the FAR); 48 C.F.R. §19.1304 (“This
subpart does not apply to (a) [r]equirements that can be satisfied through award to (1) Federal Prison Industries, Inc. ...;
or (2) AbilityOne participating non-profit agencies for the blind or severely disabled ...; (b) [o]rders under indefinite-
delivery contracts ...; (c) [o]rders against Federal Supply Schedules ...; (d) [r]equirements currently being performed by
an 8(a) participant or requirements SBA has accepted for performance under the authority of the 8(a) Program, unless
SBA has consented to release the requirements from the 8(a) Program; (e) [r]equirements that do not exceed the micro-
purchase threshold; or (f) [r]equirements for commissary or exchange resale items.”).
172 National Defense Authorization Act for FY2008, P.L. 110-181, §827, 122 Stat. 228-29 (Jan. 28, 2008) (codified at
10 U.S.C. §2410n(b)(1)).
173 See 41 U.S.C. §152 (defining “competitive procedures” to include “procurements conducted in furtherance of
section 15 of the Small Business Act ... as long as all responsible business concerns that are entitled to submit offers for
those procurements are permitted to compete”).
174 10 U.S.C. §2410n(b)(1) (requiring consideration of “a timely offer” from FPI in such competitions); 48 C.F.R.
§19.504 (“When using competitive procedures in accordance with 8.602(a)(4), agencies shall include Federal Prison
Industries, Inc. (FPI), in the solicitation process and consider a timely offer from FPI.”).
175 See, e.g., Tennier Indus., Inc., B-403946.2 (June 29, 2012) (upholding a challenged procurement in which an agency
permitted FPI to compete for a contract set-aside for HUBZone small businesses).
176 48 C.F.R. §19.203(a) & (c).
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must generally “consider” sole-source awards to 8(a) firms, SDVOSBs, and HUBZone small
businesses prior to setting aside an acquisition for small businesses generally.177
Set-Asides Under the Veterans Benefits Act
The relationship between set-asides for SDVOSBs and VOSBs under the authority of the
Veterans Benefits Act and certain “priority sources” listed in Table 1 (e.g., AbilityOne) has
arguably been seen as largely within VA’s discretion. For example, GAO upheld a challenged VA
procurement of items currently listed on the AbilityOne procurement list through AbilityOne,
instead of a set-aside for SDVOSBs or VOSBs.178 GAO did so, in part, because it found that the
Veterans Benefits Act and the statute requiring agencies to purchase services from AbilityOne
“can be read so as not to conflict” because the 2006 act does not expressly address the preference
for AbilityOne:
[t]hat is, the VA Act neither expressly overrides the [AbilityOne] preference nor provides
that the preference for [veteran-owned] concerns is subordinate to that of the AbilityOne
program.179
Thus, because it found that Congress had left a gap for the VA to fill in determining how set-
asides for VOSBs were to be reconciled with the AbilityOne program, GAO found that VA’s
interpretation of the 2006 act—which provided for the VA to purchase items currently on the
AbilityOne list from AbilityOne—was entitled to certain deference.180 The Court of Federal
Claims similarly found that VA guidelines requiring contracting officers to research whether
VOSBs could supply requirements that are not currently on the AbilityOne list before adding
them to the list warranted deference, in part, because the guidelines provide detailed instruction to
“fill[] a space between the [2006 act], the Javits-Wagner-O’Day Act [which requires that certain
purchases be made from AbilityOne], and their accompanying regulations.”181
In contrast, the 2006 act is explicit as to the priority among set-asides for SDVOSBs, VOSBs, and
other small businesses. Under the act, contracts awarded on a set-aside or sole-source basis to
SDVOSBs have “priority” over those awarded to VOSBs.182 Contracts awarded to VOSBs, in
turn, have precedence over those awarded through the 8(a) or HUBZone programs, and contracts
awarded through the 8(a) or HUBZone programs have priority over those awarded “pursuant to
any other small business contracting preference” (e.g., set-asides for WOSBs).183
177 48 C.F.R. §19.800(e) (8(a) firms); 48 C.F.R. §19.1306(a) (HUBZone small businesses); 48 C.F.R. §19.1406(a)
(SDVOSBs). The FAR Council has not yet proposed regulations implementing the provisions of the FY2015 National
Defense Authorization Act that authorize sole-source awards for WOSBs. See supra note 74 and accompanying text.
178 Alternative Contracting Enterprises, LLC; Pierce First Med., B-406265,B-406266,B-406291,B-406291.2,B-
406318.1,B-406318.2,B-406343,B-406356,B-406357,B-406369,B-406371,B-406374,B-406400,B-406404,B-406428
(Mar. 26, 2012).
179 Id.
180 Id.
181 Angelica Textile Servs., Inc. v. United States, 95 Fed. Cl. 208, 222 (2010).
182 38 U.S.C. §8127(i)(1)-(4). See also Buy Rite Transport, B-403729; B-403768 (Oct. 15, 2010) (affirming agency’s
determination to use a set-aside for SDVOSB, instead of a set-aside for VOSBs, in part, because the 2006 act provides
that set-asides for SDVOSBs have “priority” over those for VOSBs).
183 38 U.S.C. §8127(i)(1)-(4).
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Limitations on the Use of Small Business Set-Asides
While set-asides may sometimes be required and sometimes permitted, there could also be
circumstances where set-asides are prohibited. Such a situation would arguably be most likely to
arise because of statutory conditions imposed on the procurement of particular goods or services
by particular agencies or, in the case of set-asides for 8(a) firms, because of court orders. For
example, until it was repealed in 2010,184 the Small Business Competitiveness Demonstration
Program Act of 1988 required the Department of Defense (DOD) to “solicit[] on an unrestricted
basis” contracts valued in excess of $25,000 for the procurement of services in industries where
DOD had met an annual goal of awarding at least 40% of its contract dollars to small
businesses.185 Solicitation on an “unrestricted basis” precluded the use of small business set-
asides, since small business set-asides entail the “restriction of [a] solicitation to small business
concerns.”186 Similarly, in several cases, agencies have been barred from setting aside particular
procurements for 8(a) small businesses as a result of challenges brought by nonminority
contractors alleging that this program impermissibly discriminates against them. Because
eligibility for the 8(a) Program is based, in part, on race,187 in responding to such challenges, the
government must show that the program is narrowly tailored to meet a compelling government
interest.188 An alleged government interest, in turn, qualifies as a compelling one, for due process
or equal protection purposes, only when the government entity creating the racial classification
(1) identified public or private discrimination with some specificity before resorting to race-
conscious remedies and (2) had a “strong basis in evidence” to conclude that race-conscious
remedies were necessary before enacting or implementing these remedies.189 In a few cases, the
government has been found to have lacked adequate evidence of discrimination and, thus, been
barred from using 8(a) set-asides in particular industries or geographic areas.190 For example, in
DynaLantic Corporation v. U.S. Department of Defense, the U.S. District Court for the District of
Columbia recently found that the 8(a) Program was unconstitutional as applied in the military
184 P.L. 111-240, §1335, 124 Stat. 2543.
185 P.L. 100-656, §713, 102 Stat. 3892 (Nov. 15, 1988). This 40% goal was established by the 1988 act for certain
industries, and was separate from the 23% goal provided for in Section 15 of the Small Business Act. Id. at §712, 192
Stat. 3890-91.
186 41 U.S.C. §3303.
187 See, e.g., Rothe Dev. Corp. v. Dep't of Defense, 545 F.3d 1023, 1035 (Fed. Cir. 2008) (finding that a Department of
Defense program which incorporated the same presumption that members of certain racial and ethnic groups are
socially disadvantaged that is incorporated in the 8(a) Program constituted an “explicit racial classification”). Some
courts had previously denied firms or individuals standing to challenge programs with such presumptions on the
grounds that the would-be plaintiffs were denied the contract because of inability to demonstrate social and economic
disadvantage, not because of race. See, e.g., Interstate Traffic Control v. Beverage, 101 F. Supp. 2d 445 (S.D. W.Va.
2000); Ellsworth Assocs. v. United States, 926 F. Supp. 207 (D.D.C. 1996). However, that approach no longer appears
to be prevalent.
188 See, e.g., Adarand Constructors, Inc. v. Peña, 515 U.S. 200 (1995). For further discussion of Adarand and related
cases, see generally CRS Report RL33284, Minority Contracting and Affirmative Action for Disadvantaged Small
Businesses: Legal Issues, by Jody Feder.
189 Shaw v. Hunt, 517 U.S. 899, 909-10 (1996); Concrete Works of Colorado, Inc. v. City and County of Denver, 321
F.3d 950, 958 (10th Cir. 2003).
190 See, e.g., Cortez III Service Corp. v. Nat'l Aeronautics & Space Admin., 950 F. Supp. 357, 361 (D.D.C. 1996)
(finding that the 8(a) Program is facially constitutional, but that “agencies have a responsibility to decide whether there
has been a history of discrimination in the particular industry at issue” prior to procuring requirements through the 8(a)
Program); Fordice Constr. Co. v. Marsh, 773 F. Supp. 867 (S.D. Miss. 1990) (“The court … finds that the United States
Army Corps of Engineers failed to give consideration to the impact of a 100% set-aside upon non-§8(a) eligible
contractors in the Vicksburg area.”).
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simulation and training industry because the Department of Defense (DOD) conceded it had “no
evidence of discrimination, either in the public or private sector, in the simulation and training
industry.”191 The court thus enjoined SBA and DOD from “awarding procurements for military
simulators under the Section 8(a) program without first articulating a strong basis in evidence for
doing so.”192
Situations could also potentially arise where an agency—which is required to set aside certain
acquisitions for small businesses—is also required to use other procurement vehicles and, thus, is
seen as having discretion in giving the other procurement vehicle(s) priority over small business
set-asides. This recently happened with the VA, as discussed previously. The VA is generally
required, pursuant to the 2006 amendments to the Veterans Benefits Act, to use set-asides for
SDVOSBs or other VOSBs whenever the Rule of Two is satisfied.193 However, other provisions
of law also require the VA (and other federal agencies) to procure certain services through
AbilityOne, a program that promotes the employment of persons with handicaps and
disabilities.194 Faced with these dual mandates, VA issued guidance that directed VA contracting
officers to procure all items currently listed on the AbilityOne procurement list from AbilityOne,
rather through a set-aside for VOSBs.195 This guidance was challenged on the grounds that the
2006 amendments to the Veterans Benefit Act require the VA to use set-asides for VOSBs
whenever the Rule of Two is satisfied. However, GAO found that the issuance of this guidance
was within VA’s authority because the 2006 amendments did not indicate how VA’s obligations
under the Veterans Benefits Act were to be reconciled with its obligations as to AbilityOne.196
Thus, GAO viewed the VA as having the discretion to preclude the use of set-asides for items
currently on the AbilityOne list.197
191 885 F. Supp. 2d 237 (D.D.C. 2012).
192 Id. at 293. The Department of Defense (DOD), in turn, responded to this order by issuing guidance that bars the
award of contracts for procurement of “military simulators or any services in the military simulator industry” through
the 8(a) Program. See Dep’t of Defense, Office of the Under Secretary of Defense, Acquisition, Technology &
Logistics, Immediate Cessation of Small Business Development Program (8(a) Program) Procurement Contracts for
Military Simulators or Services in the Military Simulator Industry, Aug. 22, 2012, available at http://www.acq.osd.mil/
dpap/policy/policyvault/USA004988-12-DPAP.pdf. Some commentators have criticized DOD’s guidance on the
grounds that it goes beyond scope of the court’s injunction by including services. See, e.g., National Minority
Organizations Respond to Federal Court DynaLantic Corp. Decision, Aug. 31, 2012, available at
http://www.prnewswire.com/news-releases/national-minority-organizations-respond-to-federal-court-dynalantic-corp-
decision-168192866.html.
193 See supra notes 125 to 140 and accompanying text.
194 41 U.S.C. §8504(a) (“An entity of the Federal Government intending to procure a product or service on the
procurement list referred to in section 8503 of this title shall procure the product or service from a qualified nonprofit
agency for the blind or a qualified nonprofit agency for other severely disabled in accordance with regulations of the
[Committee for Purchase From People Who Are Blind or Severely Disabled] and at the price the Committee establishes
if the product or service is available within the period required by the entity.”).
195 See Dep’t of Veterans Affairs, Deputy Assistant Secretary for Acquisition and Logistics, New Guidelines for
Placing Items and Services on the AbilityOne Procurement List, Apr. 28, 2010, available at http://www.va.gov/oal/
docs/library/ils/il10-06.pdf.
196 Alternative Contracting Enterprises, LLC; Pierce First Med., B-406265,B-406266,B-406291,B-406291.2,B-
406318.1,B-406318.2,B-406343,B-406356,B-406357,B-406369,B-406371,B-406374,B-406400,B-406404,B-406428
(Mar. 26, 2012).
197 Id. See also Angelica Textile Servs., Inc. v. United States, 95 Fed. Cl. 208, 222 (2010) (finding that VA guidelines
requiring contracting officers to research whether VOSBs could supply requirements that are not currently on the
AbilityOne list before adding them to the list warranted deference, in part, because the guidelines provide detailed
instruction to “fill[] a space between the [2006 act], the Javits-Wagner-O’Day Act, and their accompanying
regulations”).
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A requirement that an agency select vendors for particular goods or services on a “competitive
basis,” in contrast, would probably not be construed to preclude the use of small business set-
asides, as evidenced by the courts’ rejection of several challenges to the Department of Labor’s
(DOL’s) determination to set aside certain contracts for the operation of Job Corps centers for
small businesses.198 The incumbent contractors—who did not qualify as “small” under the federal
government’s size standards—challenged DOL’s determination, in part, on the grounds that set-
asides do not constitute selections on a “competitive basis,” as is generally required under the
Workforce Investment Act. They also noted that set-asides are not among the exceptions to
selection on a “competitive basis” expressly provided for in the act.199 The court, however,
rejected these arguments, finding that use of “competitive procedures” constitutes “select[ion] on
a competitive basis” for purposes of the Workforce Investment Act (WIA).200 In so doing, the
court expressed its view that the Federal Property and Administrative Services Act, as amended
by the Competition in Contracting Act, contemplates various degrees of competition, from “full
and open competition” through noncompetitive; and that procedures that do not constitute full
and open competition are not necessarily noncompetitive.201 In particular, the court found that
“small business set-asides are, by definition, not ‘noncompetitive,’” a holding which could have
resonance beyond Workforce Investment Act.202 It should be noted, however, that in reauthorizing
WIA in 2014, Congress required DOL to permit firms that are operators of “high-performing
centers” to participate in any “competitive selection process” for Center operators, regardless of
the firm’s size.203
198 Res-Care, Inc. v. United States, 107 Fed. Cl. 136 (2012); Mgmt. & Training Corp. v. United States, No. 12-561C,
2012 U.S. Claims LEXIS 1580 (Nov. 29, 2012).
199 Res-Care, 107 Fed. Cl. at 140; Mgmt. & Training Corp., 2012 U.S. Claims LEXIS 1580, at *15-*27. The
Workforce Investment Act states that:
Except as provided in subsections (c) and (d) of Section 303 of the Federal Property and
Administrative Services Act [FPASA] of 1949 …, the Secretary [of Labor] shall select on a
competitive basis an entity to operate a Job Corps center and entities to provide activities described
in this subtitle to the Job Corps center.
29 U.S.C. §2887(a)(2)(A). Because Subsections 303(c) and (d) expressly refer to the seven circumstances in which
agencies may make noncompetitive awards (e.g., only one responsible source, unusual and compelling urgency), the
protesters claimed that DOL was prohibited from using set-asides for small businesses on the grounds that set-asides
are not authorized by Subsections 303(c) and (d) of FPASA, and do not entail “select[ions] on a competitive basis.”
Res-Care, 107 Fed. Cl. at 139. Rather, set-asides are authorized by Subsections 303(a) and (b), 41 U.S.C. §§3301,
3303, and according to the protesters, do not constitute selections on a competitive basis, even though they are
designated as “competitive procedures” for purposes of federal procurement law. See Res-Care, 107 Fed. Cl. at 140.
200 Res-Care, 107 Fed. Cl. at 141.
201 Id.
202 Id. In addition, the court in Management & Training Corporation v. United States, found that agencies were not
required to determine that one of the four “interests” noted in Section 15(a) (e.g., war and national defense) was
implicated before setting aside a contract for small businesses. See 2012 U.S. Claims LEXIS 1580, at *27-*30.
203 Workforce Innovation and Opportunity Act, P.L. 113-128, §147(b)(1), 128 Stat. 1544 (July 22, 2014). The Joint
Explanatory Statement accompanying an earlier appropriations measure had used similar language, providing that DOL
“should” give “due consideration” to high-performing incumbent contractors, regardless of their size, as part of a “full,
fair, and open competitive process” when awarding contracts to operate Job Corps Centers. However, a federal court
recently construed this language as “precatory and directed at policy makers in the agency.” Adams, 2015 U.S. Claims
LEXIS 83 at *11-*12.
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Conclusions
As the foregoing discussion suggests, determining whether and when particular requirements
pertaining to small business set-asides apply can be complicated. Multiple statutes—some of
which apply only to specific agencies—govern set-asides for small businesses, and authorize
different actions as to different types of small businesses. These statutes were enacted over time,
between 1958 and 2006, and arguably have not always been consistent in their treatment of
particular things (e.g., the Small Business Act authorizes sole-source awards for 8(a) firms,
SDVOSBs, HUBZone small businesses, and WOSBs). Further, these statutes have been
implemented by SBA regulations and the FAR over a number of years, and the bases for certain
regulatory interpretations are not always clear, even if they are arguably within the agency’s
discretion (e.g., the exclusion of contracts awarded and/or performed outside the United States
from the small business requirements of the FAR). In addition, the statutes and regulations have
been construed and applied by various judicial and administrative tribunals, which have, at times,
had differing interpretations of the same provision (e.g., GAO viewing the VA as required to use
set-asides for VOSBs instead of the Federal Supply Schedules, while the federal courts do not).
On top of all this, the stakes of these interpretations are arguably high, as small businesses and
other vendors compete for a limited—and potentially dwindling—pool of federal contract
dollars.204 This can lead some to attempt to place significant weight on particular words (e.g.,
“shall,” “competitive basis”) in the hopes of narrowing—or broadening—the competition for
particular procurements. Questions could, however, potentially be raised as to whether the
existing statutory and regulatory provisions were drafted with such potential arguments in mind,
or whether they are based, in part, on long-standing practices in the procurement field (e.g., the
exclusion of orders placed through the Federal Supply Schedules from small business set-asides
under the Veterans Benefits Act). Congress could potentially respond to any interpretations with
which it disagrees by amending the relevant statutes; directing SBA or the FAR Council to
promulgate or amend regulations; or requiring agencies to abide by particular interpretations of
statutes or regulations.205
Author Contact Information
Kate M. Manuel
Erika K. Lunder
Legislative Attorney
Legislative Attorney
kmanuel@crs.loc.gov, 7-4477
elunder@crs.loc.gov, 7-4538
204 See, e.g.,Brian Mahoney, DOD Official Warns of Further Cuts as 2016 Sequester Looms, LAW360, Mar. 10, 2014.
205 See, e.g., Local Community Recovery Act of 2006, P.L. 109-218, 120 Stat. 333 (Apr. 20, 1996) (“It is the sense of
Congress that the Corps of Engineers should promptly implement the decision of the Government Accountability
Office in solicitation W912EE-06–R-0005, dated March 20, 2006.”).
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