Small Business Set-Aside Programs: An Overview and Recent Developments in the Law
Small Business Set-Aside Programs:
An Overview and Recent Developments
in the Law
Kate M. Manuel
Legislative Attorney
Erika K. Lunder
Legislative Attorney
June 15, 2012
Congressional Research Service
7-5700
www.crs.gov
R41945
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Small Business Set-Aside Programs: An Overview and Recent Developments in the Law
Summary
In government contracting law, a “set-aside” is a procurement in which only certain businesses
may compete. Set-asides can be total or partial, depending upon whether the entire procurement,
or just a severable segment of it, is so restricted. Eligibility for set-asides is typically based on
business size, as well as demographic characteristics of the business owners. Currently, under the
Small Business Act, there are set-aside programs for (1) small disadvantaged businesses
participating in the 8(a) Minority Small Business and Capital Ownership Development Program
(8(a) small businesses); (2) Historically Underutilized Business Zone (HUBZone) small
businesses; (3) women-owned small businesses; (4) service-disabled veteran-owned small
businesses; and (5) small businesses not belonging to any of the prior four categories.
These programs are all government-wide and could potentially be used by any agency. However,
the programs differ in their eligibility requirements and the types of contracting preferences they
provide for participating small businesses. For example, there are some significant differences
among the programs as to when set-asides may be used (e.g., the value of qualifying contracts).
Additionally, while the Small Business Act provides special authority for agencies to make sole-
source awards to 8(a), HUBZone, and service-disabled veteran-owned small businesses, sole-
source awards to women-owned or other small businesses are generally possible only under the
authority of the Competition in Contracting Act (CICA). CICA authorizes noncompetitive
awards, or awards made after soliciting and negotiating with only one source, to any size firm
when certain conditions exist (e.g., single source; urgent and compelling circumstances).
Moreover, only HUBZone small businesses qualify for “price evaluation preferences” in
unrestricted competitions.
In addition, the Veterans Benefits, Health Care, and Information Technology Act of 2006 (P.L.
109-461) provides the Department of Veterans Affairs (VA) with additional authority to award
set-aside or sole-source contracts to veteran-owned and service-disabled veteran-owned small
businesses. Contracts with a value of less than $150,000 may be awarded on a set-aside or sole-
source basis at the contracting officer’s discretion. Contracts valued in excess of $150,000 must
generally be awarded via a set-aside, although sole-source awards of up to $5 million may be
made in certain circumstances.
The 111th Congress enacted legislation (P.L. 111-240) amending the statutory language that the
Government Accountability Office (GAO) and U.S. Court of Federal Claims had construed, in a
series of decisions issued in 2008-2010, as requiring agencies to give set-asides for HUBZone
small businesses “precedence” over those for 8(a) and service-disabled veteran-owned small
businesses. However, in 2010-2011, GAO and the Court of Federal Claims issued several other
decisions interpreting the statutes and regulations governing the set-aside programs that could
also affect the number of awards to such businesses. Among other things, these decisions found
that VA is generally required to use set-asides for small businesses instead of procuring goods or
services through the “optional” Federal Supply Schedules, although it was within VA’s discretion
to promulgate guidelines providing that AbilityOne organizations are to be given priority when it
purchases items on the AbilityOne list. (The Federal Supply Schedules are online “catalogs” that
contain goods or services offered by multiple vendors. AbilityOne is a procurement program that
promotes employment opportunities for persons who are blind or severely disabled.) Other
decisions have addressed the market research underlying set-aside determinations; withdrawal of
requirements from the 8(a) Program; and the applicability of the non-manufacturer rule and price
evaluation preferences in HUBZone set-asides.
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Small Business Set-Aside Programs: An Overview and Recent Developments in the Law
Contents
Introduction...................................................................................................................................... 1
Set-Asides Under the Small Business Act ....................................................................................... 1
Eligibility Requirements............................................................................................................ 2
Set-Aside Programs ................................................................................................................... 5
Small Businesses Generally ................................................................................................ 5
8(a) Small Businesses.......................................................................................................... 6
HUBZone Small Businesses ............................................................................................... 8
Women-Owned Small Businesses....................................................................................... 9
Service-Disabled Veteran-Owned Small Businesses......................................................... 11
Set-Asides Under the Veterans Benefits, Health Care, and Information Technology Act ............. 12
Developments in the Law Regarding Set-Asides .......................................................................... 13
Market Research Underlying Set-Aside Determinations ........................................................ 14
Market Research for and Withdrawal of Requirements from 8(a) Set-Asides ........................ 18
Applicability of Non-manufacturer Rule and Price Evaluation Preferences in
HUBZone Set-Asides ........................................................................................................... 21
Set-Asides Under the Veterans Benefits, Health Care, and Information Technology
Act ........................................................................................................................................ 23
Figures
Figure 1. Small Businesses Generally: Preferences Based on Contract Size .................................. 6
Figure 2. 8(a) Participants: Preferences Based on Contract Size..................................................... 7
Figure 3. HUBZone Small Businesses: Preferences Based on Contract Size ................................. 8
Figure 4. Women-Owned Small Businesses: Preferences Based on Contract Size ....................... 11
Figure 5. Service-Disabled Veteran-Owned Small Businesses:
Preferences Based on Contract Size ........................................................................................... 12
Contacts
Author Contact Information........................................................................................................... 27
Acknowledgments ......................................................................................................................... 27
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Small Business Set-Aside Programs: An Overview and Recent Developments in the Law
Introduction
This report discusses the set-aside programs for small businesses under the Small Business Act of
1958, as amended, and the Veterans Benefits, Health Care, and Information Technology Act of
2006, as well as recent decisions by the Government Accountability Office (GAO) and U.S.
Court of Federal Claims interpreting these statutes and the regulations implementing them. These
set-aside programs provide numerous contracting “preferences” to eligible small businesses,
including restricted competitions (i.e., set-asides), sole-source awards, and price evaluation
preferences in unrestricted competitions. Members and committees of Congress pay considerable
attention to the set-aside programs because:
[i]t is the 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 [and] 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.1
Congress has also established goals for the percentage of federal contract and subcontract dollars
awarded to small businesses government-wide.2 It regularly oversees the small business
contracting programs,3 and Members frequently enact or introduce legislation to address
perceived limitations of the set-aside programs, or expand eligibility for them.4
This report supersedes 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.
Set-Asides Under the Small Business Act
A “set-aside” is a procurement in which only certain businesses may compete. Set-asides can be
total or partial, depending upon whether the entire procurement, or just a severable segment of it,
1 15 U.S.C. §631(a).
2 See 15 U.S.C. §644(g)(1) (setting the goal that at least 23% of federal contract dollars be awarded to small businesses,
as well as goals that 3% of federal contract and subcontract dollars be awarded to Historically Underutilized Business
Zone (HUBZone) small businesses; 3% to service-disabled veteran owned small businesses; 5% to women-owned
small businesses; and 5% to small disadvantaged businesses. In addition, Congress also requires agencies to set agency-
specific goals for contracting with small businesses. See 15 U.S.C. §644(g)(2). In FY2010, SBA reported that small
businesses were awarded 22.7% of federal contract dollars and that HUBZone small businesses were awarded 2.77% of
federal contract and subcontract dollars; service-disabled veteran-owned small businesses, 2.5%; women-owned small
businesses, 4.04%; and small disadvantaged businesses, 7.95%. See Hike in Small Business Awards in 2010 Called a
“Significant” Improvement over 2009, 95 Fed. Cont. Rep. 681 (July 28, 2011). All small businesses participating in the
Minority Small Business Ownership and Capital Development Program (commonly known as the 8(a) Program) are
small disadvantaged businesses, but not all small disadvantaged businesses are 8(a) participants.
3 For example, the Senate Ad Hoc Subcommittee on Contracting Oversight held hearings on July 26, 2011, on “How
Oversight Failures and Regulatory Loopholes Allow Large Businesses to Get and Keep Small Business Contracts.”
4 See, e.g., S. 1334, Expanding Opportunities for Main Street Act of 2011 (increasing the government-wide goals for
contracting with small businesses, and for contracting and subcontracting with women-owned small businesses and
small disadvantaged businesses); H.R. 598, An Act to Eliminate the Preferences and Special Rules for Alaska Native
Corporations under the Program under Section 8(a) of the Small Business Act.
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Small Business Set-Aside Programs: An Overview and Recent Developments in the Law
is so restricted.5 Eligibility for set-asides is typically based on business size, as well as
demographic characteristics of the business owners.6 Set-asides, under current law, are not the
same as quotas. Although agencies can set aside procurements for various types of small
businesses (e.g., women-owned) and are required by statute to set minimum goals for contracting
with such businesses,7 the set-aside programs and the goals are not presently coupled. That is, the
set-aside programs do not ensure that certain groups get a share of government contracts
corresponding to agencies’ contracting goals. Quotas, in contrast, would require that certain
categories of businesses (e.g., minority-owned) get fixed percentages of government contracts.8
Although the Competition in Contracting Act (CICA) generally requires “full and open
competition” for government procurement contracts, set-asides are permissible competitive
procedures.9 CICA specifically authorizes competitions excluding all sources other than small
businesses (i.e., set-asides) when such competitions serve to assure that a “fair proportion” of all
government contracts are awarded to small businesses.10
Although these programs are under the authority of the Small Business Act, they are government-
wide, and any executive branch agency may generally use them when procuring goods or
services. The Small Business Administration (SBA) promulgates regulations that govern
eligibility and other aspects of the programs, and it works with agencies to promote contracting
with the various types of small businesses eligible for the programs. However, only in the case of
contracts with small disadvantaged businesses under the authority of Section 8(a) of the Small
Business Act are agency contracts at least nominally “offered” to SBA and then “subcontracted”
to small businesses.11
Eligibility Requirements
Under the Small Business Act of 1958, as amended, there are currently five set-aside programs,
benefiting (1) small disadvantaged businesses participating in the 8(a) Minority Small Business
and Capital Ownership Development Program (8(a) small businesses); (2) Historically
5 See, e.g., 48 C.F.R. §19.502-2 (total set-asides); 48 C.F.R. §19.502-3 (partial set-asides).
6 See 15 U.S.C. §637(a) (set-asides for 8(a) small businesses); 15 U.S.C. §637(m) (set-asides for women-owned small
businesses); 15 U.S.C. §644 (set-asides for small businesses generally); 15 U.S.C. §647a (set-asides for HUBZone
small businesses); 15 U.S.C. §657f (set-asides for service-disabled veteran-owned small businesses).
7 See supra note 2.
8 See, e.g., City of Richmond v. J.A. Croson Co., 488 U.S. 469 (1989) (finding unconstitutional a municipal ordinance
that required the city’s prime contractors to award at least 30% of the value of each contract to minority
subcontractors).
9 10 U.S.C. §2304(a) (generally requiring full and open competition in the procurements of defense agencies); 41
U.S.C. §107 (defining “full and open competition”); 41 U.S.C. §3301(a) (generally requiring full and open competition
in the procurements of civilian agencies). For more on competition in federal contracting, see CRS Report R40516,
Competition in Federal Contracting: An Overview of the Legal Requirements, by Kate M. Manuel.
10 10 U.S.C. §2304(b); 41 U.S.C. §3303 (CICA provisions authorizing set-asides for small businesses); 15 U.S.C.
§644(a) (describing when set-asides for small businesses are permissible); 48 C.F.R. §§6.203-6.207 (authorizing set-
asides for small business generally, 8(a) small businesses, HUBZone small businesses, service-disabled veteran-owned
small businesses, and women-owned small businesses).
11 In practice, SBA often delegates its authority to subcontract to the procuring agencies, which then effectively use it
to award contracts 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, December 18, 2009, available at
http://www.acq.osd.mil/dpap/dars/pgi/docs/PA.pdf.
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Underutilized Business Zone (HUBZone) small businesses; (3) women-owned small businesses;
(4) service-disabled veteran-owned small businesses; and (5) small businesses not belonging to
any of the prior four categories. A small business is one that is “independently owned and
operated,” is “not dominant in its field of operation,” and meets any definitions or standards
established by the Administrator of Small Business.12 These standards focus primarily upon the
size of the business, as measured by the number of employees, its annual average gross income,
and the size of other businesses within the same industry.13
The various subcategories of small businesses (i.e., 8(a), HUBZone, women-owned, and service-
disabled veteran-owned) must meet these general criteria, as well as specific criteria tied to their
subcategory, such as follows:
• Small businesses participating in the Minority Small Business and Capital
Ownership Development Program (8(a) Program):14 8(a) participants must be
“unconditionally owned and controlled by one or more socially and economically
disadvantaged individuals [or groups] who are of good character and citizens of the
United States.”15 They must also “demonstrate[] potential for success,”16 which
generally means that the business has been in operation for at least two full years
immediately prior to its application to the 8(a) Program.17 Members of certain racial
and ethnic groups are presumed to be socially disadvantaged,18 although other
persons are also eligible for the 8(a) Program if they can prove that they are socially
disadvantaged.19 Alaska Native Corporations and Community Development
Corporations are deemed to be economically disadvantaged for purposes of the 8(a)
Program,20 but other applicants must show actual economic disadvantage. This can be
done, in part, by producing evidence of diminished capital and credit opportunities,
including personal net worth of not more than $250,000 at the time of entry into the
8(a) Program.21 Businesses may generally participate in the 8(a) Program for no more
than nine years.22
12 15 U.S.C. §632(a)(1)-(2)(A).
13 13 C.F.R. §§121.101-121.108. For example, businesses in the field of “scheduled passenger air transportation” are
“small” if they have fewer than 1,500 employees, while those in the data processing field are “small” if they have a
gross income of less than $25 million. 13 C.F.R. §121.201.
14 This program also provides training and technical assistance to 8(a) small businesses. For more on the 8(a) program,
see CRS Report R40744, The “8(a) Program” for Small Businesses Owned and Controlled by the Socially and
Economically Disadvantaged: Legal Requirements and Issues, by Kate M. Manuel and John R. Luckey.
15 13 C.F.R. §124.101.
16 Id.
17 13 C.F.R. §124.107.
18 15 U.S.C. §637(a)(5); 13 C.F.R. §124.103(b)(1). This presumption is rebuttable and “may be overcome with credible
evidence to the contrary.” 13 C.F.R. §124.103(b)(3).
19 13 C.F.R. §124.103(c)(1). Evidence must include (1) at least one objective distinguishing feature that has contributed
to social disadvantage (e.g., race, gender, physical handicap, geographic isolation); (2) personal experiences of
substantial and chronic social disadvantage in American society; and (3) negative impact on entry into or advancement
in the business world because of the disadvantage. See 13 C.F.R. §124.103(c)(2)(i)-(iii).
20 See Alaska Land Status Technical Corrections Act, P.L. 102-415, §10, 106 Stat. 2112 (October 14, 1992) (codified at
43 U.S.C. §1626(e)); Small Disadvantaged Business Certification Application: Community Development Corporation
(CDC) Owned Concern, OMB Approval No. 3245-0317 (“A Community Development Corporation (CDC) is
considered to be a socially and economically disadvantaged entity if the parent CDC is a nonprofit organization
responsible to residents of the area it serves which has received financial assistance under 42 U.S.C. 9805, et seq.”).
21 13 C.F.R. §124.104(c). This amount increases to $750,000 for purposes of continuing eligibility for the program. See
(continued...)
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Small Business Set-Aside Programs: An Overview and Recent Developments in the Law
• HUBZone small businesses: HUBZone small businesses must typically be at least
51% unconditionally and directly owned and controlled by U.S. citizens and have
their principal office in a HUBZone.23 At least 35% of their employees must also
generally reside in a HUBZone.24 A HUBZone is a Historically Underutilized
Business (HUB) zone. HUBZone areas include census tracts or non-metropolitan
counties with higher than average unemployment, or lower than average median
household incomes; lands within Indian reservations; and base closure areas.25
• Small businesses owned and controlled by women: Women-owned small businesses
must be at least 51% owned by one or more women, with the management and daily
operations of the business also controlled by one or more women.26
• Service-disabled veteran-owned small businesses: A service-disabled veteran-owned
small business must be at least 51% unconditionally and directly owned and
controlled by one or more service-disabled veterans.27 A veteran is a person who
served “in the active military, naval, or air service, and who was discharged or
released therefrom under conditions other than dishonorable.”28 A disability is
service-related when it “was incurred or aggravated ... in [the] line of duty in the
active military, naval, or air service.”29
8(a) and HUBZone small businesses must also be certified by SBA to be eligible for the set-aside
programs.30 Service-disabled veteran-owned small businesses can generally self-certify as to their
eligibility,31 while women-owned small businesses can either (1) be certified by a federal agency,
state government, or national certifying entity approved by the SBA, or (2) self-certify and
provide adequate documentation in accordance with standards set by the SBA.32
The categories of 8(a), HUBZone, women-owned, and service-disabled veteran-owned small
businesses are not mutually exclusive.33 For example, a business could potentially be both
HUBZone and service-disabled veteran-owned if it meets the requirements of both programs.
(...continued)
13 C.F.R. §124.104(c)(2)(ii).
22 13 C.F.R. §124.2. Participants may drop out of, or be terminated from, the 8(a) Program before their ninth year of
participation, but neither individual owners nor their firms may participate in the program again after exiting it for any
reason. Group-owners (e.g., Alaska Native Corporations) are treated somewhat differently. See CRS Report R40744,
The “8(a) Program” for Small Businesses Owned and Controlled by the Socially and Economically Disadvantaged:
Legal Requirements and Issues, by Kate M. Manuel and John R. Luckey.
23 13 C.F.R. §126.200(b)(1) & (3).
24 13 C.F.R. §126.200(b)(4).
25 15 U.S.C. §632(p)(1) & (4).
26 15 U.S.C. §632(n).
27 15 U.S.C. §632(q)(1) & (4).
28 38 U.S.C. §101(2).
29 38 U.S.C. §101(16).
30 13 C.F.R. §124.112(b) (8(a) small businesses); 13 C.F.R. §126.200 (HUBZone small businesses).
31 13 C.F.R. §125.15. However, veteran-owned and service-disabled veteran-owned small businesses must have their
eligibility verified by the Department of Veterans Affairs (VA) in order to be eligible for preferences in certain VA
contracts. See infra note 75 and accompanying text.
32 15 U.S.C. §637(m)(2)(F)(i)-(ii).
33 But see S. 1334, §105(b) (proposing to limit the number of categories in which a small business may qualify).
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Set-Aside Programs
In addition to their eligibility requirements, the various set-aside programs under the Small
Business Act differ in the types of contracting preferences they provide. Each program is unique
as to (1) the conditions in which set-asides may be used; (2) whether and when sole-source
awards may be made; and (3) whether agencies may grant price evaluation preferences to the bids
or offers of small businesses in unrestricted competitions.
Small Businesses Generally
Regulations promulgated under the authority of Section 15 of the Small Business Act of 1958
authorize agencies to set aside contracts for small businesses that are not 8(a) participants or
HUBZone, women-owned, or service-disabled veteran-owned small businesses. These
regulations provide that
[t]he contracting officer shall set aside any acquisition over $150,000 for small business
participation when there is a reasonable expectation that—(1) offers will be obtained from at
least two responsible small business concerns offering the products of different small
business concerns ...; and (2) award will be made at fair market price.34
These requirements—that the contracting officer reasonably expects that offers will be received
from at least two responsible small businesses, and the award will be made at fair market price—
are commonly known as the “rule of two” because of their focus on there being at least two small
businesses.
When a total set-aside is not appropriate, a procurement generally can be partially set aside for
small businesses if (1) the requirement is severable into two or more economic production runs or
reasonable lots; (2) the contracting officer reasonably expects one or more small businesses have
the technical competence and productive capacity to satisfy the set-aside portion of the
requirement at a fair market price; and (3) the acquisition is not subject to simplified acquisition
procedures.35 However, partial set-asides cannot be used when procuring construction work.36
Agencies can sometimes also make “sole-source awards” to small businesses (i.e., awards
proposed or made after soliciting and negotiating with only one source). However, the Small
Business Act does not authorize sole-source awards to small businesses that are not 8(a)
participants or HUBZone or service-disabled veteran-owned small businesses. Rather, any such
awards must generally be made under the authority of the Competition in Contracting Act, which
permits sole-source awards when only one source can supply the goods or services or when other
34 48 C.F.R. §19.502-2(b)(1)-(2). $150,000 is generally the “simplified acquisition threshold,” or the maximum dollar
value of an acquisition that may use simplified acquisition procedures. Simplified acquisition procedures include
purchase orders, blanket purchase agreements, government-wide commercial purchase cards, and other authorized
alternatives to sealed bids or negotiated offers. See 41 U.S.C. §3305. Section 15, as amended, further requires that
procurements whose anticipated values are between $3,000 and $150,000 be “reserved exclusively” for small
businesses unless the contracting officer is unable to obtain offers from two or more small businesses that are
competitive as to market price and the quality and delivery of goods and services. 15 U.S.C. §644(j)(1); 48 C.F.R.
§19.502-2(a).
35 48 C.F.R. §19.502-3(a)(1)-(4).
36 48 C.F.R. §19.502-3(a).
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circumstances justify a sole-source award (e.g., unusual and compelling circumstances; brand-
name commercial items for resale).37
Figure 1. Small Businesses Generally: Preferences Based on Contract Size
Source: Congressional Research Service.
* The Small Business Act does not authorize sole-source awards to small businesses that are not 8(a)
participants, or HUBZone or service-disabled veteran-owned small businesses.
* * $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).
Procurements whose value is between $3,000 ($15,000 in the case of contingency operations and disaster
responses) and $150,000 ($300,000 in the case of contingency operations and disaster responses) are
“exclusively reserved” for small businesses. However, in the case of such procurements, total small business set-
asides generally may be conducted using simplified acquisition procedures. See 48 C.F.R. §19.502-5.
Procurements whose value is over $150,000 ($300,000 in the case of contingency operations and disaster
responses) generally cannot be conducted using simplified procedures.
8(a) Small Businesses
The earliest of the set-aside programs for specific types of small businesses was the set-aside
program for “small businesses owned and controlled by socially and economically disadvantaged
individuals.”38 In 1978, Congress amended Section 8 of the Small Business Act to give agencies
“discretion to [award] ... contract[s]” for goods or services, or to perform construction work, to
the SBA for subcontracting to 8(a) small businesses.39 Once an agency’s contract has been
awarded to the SBA, it is then subcontracted to certified 8(a) small businesses.40 The procedures
for doing so 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 exceeds the competitive
threshold. Contracts whose value is at or below the competitive threshold are typically awarded
without competition, and may only be competed among 8(a) firms with the approval of the SBA’s
Office of Business Development.41 Contracts whose value exceeds the competitive threshold must
generally be competed whenever the rule of two is satisfied (i.e., the contracting officer
reasonably expects offers from at least two eligible and responsible 8(a) firms,42 and the award
37 10 U.S.C. §2304(c)(1)-(7) (procurements of defense agencies) & 41 U.S.C. §3304(a)(1)-(7) (procurements of civilian
agencies). See also 48 C.F.R. §§6.302-1 to 6.302-7; CRS Report R40516, Competition in Federal Contracting: An
Overview of the Legal Requirements, by Kate M. Manuel, supra note 9.
38 See 15 U.S.C. §637(a); 48 C.F.R. §§19.800-19.812.
39 15 U.S.C. §637(a)(1)(A).
40 15 U.S.C. §637(a)(1)(D)(i). In practice, SBA generally delegates its authority to subcontract to the contracting
agencies. See supra note 11.
41 13 C.F.R. §124.506(c).
42 Before any federal contract may be awarded, the contracting officer generally must determine that the contractor is
“responsible” for purposes of that contract. See generally CRS Report R40633, Responsibility Determinations Under
(continued...)
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can be made at a fair market price).43 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.44 Sole-source awards can also be made
to 8(a) firms under other authority, such as CICA, in certain circumstances.45
Section 8(a) does not authorize agencies to grant price evaluation preferences to the bids or offers
of small disadvantaged businesses in unrestricted competitions (i.e., competitions in which all
firms may compete).46 Small disadvantaged businesses, including 8(a) firms, were once eligible
for price evaluation adjustments under other authorities. However, such authorities have expired
and/or been found unconstitutional, and are no longer in effect.47
Figure 2. 8(a) Participants: Preferences Based on Contract Size
Source: Congressional Research Service.
* Noncompetitive awards valued in excess of $4 million ($6.5 million for manufacturing contracts) may only be
made to Native Hawaiian 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).
Procurements whose value is between $3,000 ($15,000 in the case of contingency operations and disaster
responses) and $150,000 ($300,000 in the case of contingency operations and disaster responses) are
“exclusively reserved” for small businesses. However, in the case of such procurements, total small business set-
asides may generally be conducted using simplified acquisition procedures. See 48 C.F.R. §19.502-5.
(...continued)
the Federal Acquisition Regulation: Legal Standards and Procedures, by Kate M. Manuel.
43 15 U.S.C. §637(a)(1)(D)(i); 13 C.F.R. §124.506(a)(i)-(iii); 48 C.F.R. §19.805-1(a).
44 Id. Such awards may be subject to certain conditions, e.g., that the award of the contract would be 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.
15 U.S.C. §637(a)(16)(A)(i)-(iii). See also 15 U.S.C. §636(j)(10)(I) (limits on firm value).
45 See supra note 37 and accompanying text.
46 A price evaluation adjustment could involve a reduction in the price of bids or offers by eligible parties. 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 adjustment 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” for the
government. “Best value” is determined based upon price and various non-price evaluation factors selected by the
agency. See 48 C.F.R. §15.304.
47 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 adjustments to the bids or offers of small
disadvantaged businesses); Federal Acquisition Streamlining Act, P.L. 103-355, §7102, 108 Stat. 3368-69 (October 13,
1994) (price evaluation adjustment authority of civilian agencies expiring on September 30, 2003).
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Procurements whose value is over $150,000 ($300,000 in the case of contingency operations and disaster
responses) generally cannot be conducted using simplified procedures.
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 199748 provides
that
a contract opportunity may be awarded pursuant to this section on the basis of competition
restricted to qualified HUBZone small business concerns if the contracting officer has a
reasonable expectation that not less than 2 qualified HUBZone small business concerns will
submit offers and that the award can be made at a fair market price.49
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 businesses will submit
offers;50 (2) the anticipated award will not exceed $4 million ($6.5 million for manufacturing
contracts); and (3) the award can be made at a fair and reasonable price.51 Otherwise, sole-source
awards may only be made to HUBZone firms under other authority, such as CICA.52
In addition, the HUBZone Act authorizes agencies to grant price evaluation adjustments of up to
10% to the bids or offers of HUBZone small businesses in unrestricted competitions.53 This
means 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.54
Figure 3. HUBZone Small Businesses: Preferences Based on Contract Size
Source: Congressional Research Service.
48 See P.L. 105-135, Title VI, §602(b)(1)(B), 111 Stat. 2629 (December 2, 1997) (codified at 15 U.S.C. §657a); 48
C.F.R. §19.1305.
49 15 U.S.C. §657a(b)(2)(B). The HUBZone Act originally provided that contracts “shall” be awarded via a HUBZone
set-aside when these conditions are met. However, the 111th Congress amended the HUBZone Act, changing “shall” to
“may.” See Small Business Jobs Act, P.L. 111-240, §1347(b)(1), 124 Stat. 2547 (September 27, 2010).
50 For more on responsibility, see supra note 43.
51 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).
52 See supra note 37.
53 15 U.S.C. §657a(b)(3).
54 48 C.F.R. §52.219-4(b)(i)-(ii).
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* 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).
Procurements whose value is between $3,000 ($15,000 in the case of contingency operations and disaster
responses) and $150,000 ($300,000 in the case of contingency operations and disaster responses) are
“exclusively reserved” for small businesses. However, in the case of such procurements, total small business set-
asides generally may be conducted using simplified acquisition procedures. See 48 C.F.R. §19.502-5.
Procurements whose value is over $150,000 ($300,000 in the case of contingency operations and disaster
responses) generally cannot be conducted using simplified procedures.
Women-Owned Small Businesses
Although set-asides for women-owned small businesses were not implemented until 2011, the
set-aside program for them was the next one created.55 The Small Business Reauthorization Act
of 200056 amended Section 8(m) of the Small Business Act with the apparent intent to authorize
set-asides for small businesses owned by one or more economically disadvantaged women when
(1) the “rule of two” is satisfied; (2) the anticipated value of the contract will not exceed $4
million ($6.5 million in the case of manufacturing contracts); and (3) the proposed procurement
involves an industry in which women-owned small businesses are underrepresented.57
55 Implementation was delayed by the requirement that set-asides be used only in industries in which women are
underrepresented or substantially underrepresented. The 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 (December 27, 2007) (hereinafter SBA 2007 Proposed Rule). This
proposed rule was widely criticized, including by some Members of Congress, and the 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 (February 19, 2008); Robert Brodsky, SBA Issues New Proposal on Small Business
Program, But Same Questions Remain, Government Executive.com, September 30, 2008, available at
http://www.govexec.com/dailyfed/0908/093008rb1.htm (noting the SBA proposed to increase the number of industries
from 4 to 31). 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, 545 F.3d 1023 (Fed. Cir. 2008),
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. Although gender-conscious
programs are subject to “intermediate” scrutiny, not strict scrutiny like the race-conscious program at issue in Rothe,
the 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 (January 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 (March 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 (March 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. Small Bus. Admin., Women-Owned Small Business Federal Contract Program: Final Rule, 75 Fed.
Reg. 62258 (October 7, 2010).
56 See P.L. 106-554, Title VIII, §811, 114 Stat. 2763A–708 (December 21, 2000) (codified at 15 U.S.C. §637(m)).
57 15 U.S.C. §637(m)(2)(A)-(F) & (m)(4).
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There is an ambiguity in the statute as this last requirement cross-references Section 8(m)(3),58
which waives the requirement that owners be economically disadvantaged when a contract
involves an industry in which women are substantially underrepresented.59 A literal reading of the
cross-reference suggests that only contracts involving industries in which women are
substantially underrepresented qualify for the set-aside.60 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 error, and that the reference should have been to Section
8(m)(4).61 Section 8(m)(4) requires SBA to identify industries in which women are
underrepresented, without adding the substantially modifier.62 The regulations, therefore,
distinguish between economically disadvantaged women-owned small businesses and other
women-owned small businesses, authorizing set-asides for economically disadvantaged women-
owned small businesses in industries in which they are underrepresented and for other women-
owned small businesses only in industries in which they are substantially underrepresented.63
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,”64 as well as unsupported by the legislative history.65 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 [women-owned small businesses] are merely underrepresented rather than
substantially underrepresented.”66
Section 8(m) does not authorize special sole-source awards to women-owned small businesses.
Thus, any such awards to women-owned small businesses must be made under other authority,
such as CICA.67 Women-owned small businesses are also not eligible for price evaluation
preferences in unrestricted competitions.
58 15 U.S.C. §637(m)(2)(C) (“[T]he contract is for the procurement of goods or services with respect to an industry
identified by the Administrator pursuant to paragraph (3))”.
59 15 U.S.C. §637(m)(3) (“With respect to a small business concern owned and controlled by women, the Administrator
may waive subparagraph (2)(A) [requiring the business be owned by economically disadvantaged women] if the
Administrator determines that the concern is in an industry in which small business concerns owned and controlled by
women are substantially underrepresented.”).
60 See SBA 2007 Proposed Rule, supra note 56 at 73286; SBA 2010 Proposed Rule, supra note 56 at 10031-32.
61 See SBA 2007 Proposed Rule, supra note 56 at 73286; SBA 2010 Proposed Rule, supra note 56 at 10031-32.
62 15 U.S.C. §637(m)(4) (“The Administrator shall conduct a study to identify industries in which small business
concerns owned and controlled by women are underrepresented with respect to Federal procurement contracting.”).
63 48 C.F.R. §19.1505(b), (c).
64 SBA 2007 Proposed Rule, supra note 56 at 73286.
65 See SBA 2010 Proposed Rule, supra note 56 at 10031.
66 SBA 2007 Proposed Rule, supra note 56 at 73286;
67 See supra note 37.
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Figure 4. Women-Owned Small Businesses: Preferences Based on Contract Size
Source: Congressional Research Service.
* Sole-source contracts may be awarded to women-owned 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).
Procurements whose value is between $3,000 ($15,000 in the case of contingency operations and disaster
responses) and $150,000 ($300,000 in the case of contingency operations and disaster responses) are
“exclusively reserved” for small businesses. However, in the case of such procurements, total small business set-
asides generally may be conducted using simplified acquisition procedures. See 48 C.F.R. §19.502-5.
Procurements whose value is over $150,000 ($300,000 in the case of contingency operations and disaster
responses) generally cannot be conducted using simplified procedures.
Service-Disabled Veteran-Owned Small Businesses
Finally, the Veterans Benefits Act (VBA) of 2003 amended the Small Business Act to establish
the set-aside program for service-disabled veteran-owned small businesses.68 The VBA authorizes
agencies to set aside procurements for service-disabled veteran-owned small businesses whenever
the “rule of two” is satisfied.69
The VBA also authorizes sole-source awards to service-disabled veteran-owned small businesses
when (1) the contracting officer does not reasonably expect that two or more service-disabled
veteran-owned small businesses will submit offers; (2) the anticipated award will not exceed $3.5
million ($6 million for manufacturing contracts); and (3) the award can be made at a fair and
reasonable price.70 Otherwise, sole-source awards may only be made to service-disabled veteran-
owned small businesses under other authority, such as CICA.71
Service-disabled veteran-owned small businesses are not eligible for price evaluation preferences
in unrestricted competitions.
68 See P.L. 108-183, Title III, §308, 117 Stat. 2662 (December 16, 2003) (codified at 15 U.S.C. §657f); 48 C.F.R.
§19.1405.
69 15 U.S.C. §657f(b).
70 15 U.S.C. §657f(a)(1)-(3) (statutory requirements); 48 C.F.R. §19.1406(a) (increasing the price thresholds).
71 See supra note 37.
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Figure 5. Service-Disabled Veteran-Owned Small Businesses:
Preferences Based on Contract Size
Source: Congressional Research Service.
* Sole-source contracts valued in excess of $3.5 million ($6 million for manufacturing contracts) 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).
Procurements whose value is between $3,000 ($15,000 in the case of contingency operations and disaster
responses) and $150,000 ($300,000 in the case of contingency operations and disaster responses) are
“exclusively reserved” for small businesses. However, in the case of such procurements, total small business set-
asides generally may be conducted using simplified acquisition procedures. See 48 C.F.R. §19.502-5.
Procurements whose value is over $150,000 ($300,000 in the case of contingency operations and disaster
responses) generally cannot be conducted using simplified procedures.
Set-Asides Under the 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.72 However, unlike the program for veteran-owned small
businesses under the Small Business Act, 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, veteran-owned small businesses must have their eligibility
verified by VA.73 They may not self-certify as to their eligibility as they can for the service-
disabled veteran-owned small business set-aside program under the Small Business Act.74
The 2006 act authorizes VA to set aside procurements for veteran-owned small businesses, as well
as make sole-source awards to them, in order to reach VA’s goals for contracting and
subcontracting with veteran-owned small businesses.75 Contracts whose value is less than
72 P.L. 109-461, 120 Stat. 3431 (December 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.
73 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 decision that a protester
was not listed in VA’s VetBiz database as eligible for a set-aside award under the 2006 act).
74 See supra note 31 and accompanying text.
75 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 veteran-owned small businesses. He or she is also
required to establish a separate goal for the participation of service-disabled veteran-owned small businesses 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 service-disabled veteran-owned small
(continued...)
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$150,000 may be awarded on a set-aside or sole-source basis at the contracting officer’s
discretion.76 Contracts valued in excess of $150,000 must generally be awarded via a set-aside if
the contracting officer has a reasonable expectation that at least two veteran-owned small
businesses will submit offers, and the award can be made at a fair and reasonable price “that
offers best value to the United States.”77 However, sole-source awards of contracts valued in
excess of $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;78 (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.”79
Under the 2006 act, VA contracts awarded on a set-aside or sole-source basis to service-disabled
veteran-owned small businesses have “priority” over those awarded to veteran-owned small
businesses.80 Contracts awarded to veteran-owned small businesses, in turn, have precedence over
those awarded through the 8(a) or HUBZone programs, or “pursuant to any other small business
contracting preference.”81
Developments in the Law Regarding Set-Asides
The 111th Congress enacted legislation (P.L. 111-240) that amended the statutory language which
the Government Accountability Office (GAO) and U.S. Court of Federal Claims had construed, in
a series of decisions issued in 2008-2010, as requiring agencies to give set-asides for HUBZone
small businesses “precedence” over those for 8(a) and service-disabled veteran-owned small
businesses.82 However, in 2010-2011, GAO and the Court of Federal Claims issued several other
decisions interpreting the statutes and regulations governing the set-aside programs that could
also affect the number of awards to such businesses. For example, in Aldevra, GAO found that, in
certain circumstances, the VA must use set-asides for veteran-owned small businesses, instead of
procuring goods or services through the Federal Supply Schedules.83 Some commentators have
(...continued)
businesses 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).
76 38 U.S.C. §8127(b).
77 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 may be used.
78 For more on responsibility, see supra note 43.
79 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 VA conduct market research to determine if the procurement should be set aside for small businesses
because the act grants VA authority to use “noncompetitive procedures” for small purchases).
80 38 U.S.C. §8127(i)(1)-(4). See also Buy Rite Transport, B-403729; B-403768 (October 15, 2010) (affirming
agency’s determination to use a set-aside for service-disabled veteran-owned small businesses, instead of a set-aside for
veteran-owned small businesses, in part, because the 2006 act provides that set-asides for service-disabled veteran-
owned small businesses have “priority” over those for veteran-owned small businesses).
81 38 U.S.C. §8127(i)(1)-(4).
82 See generally 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.
83 B-405271; B-405524 (October 11, 2011).
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suggested that this decision could result in over $3 billion in additional spending by the VA with
veteran-owned small businesses,84 although such purchases could potentially be more expensive
for the government than purchases under the Schedules.85
Market Research Underlying Set-Aside Determinations
By upholding challenged market research practices, several recent decisions by GAO and the
Court of Federal Claims highlight the broad discretion that contracting officers have in
determining whether to use a small business set-aside when procuring particular goods or
services. “Market research” is the term used to describe the process whereby agencies “collect[]
and analyz[e] information about capabilities within the market to satisfy agency needs.”86 The
Federal Acquisition Regulation (FAR) requires contracting officers to conduct market research
before developing new requirements or soliciting offers.87 However, the FAR is generally silent as
to how that market research should be conducted, particularly for purposes of a set-aside
determination.88 This silence is arguably significant because the determination as to whether to
use a small business set-aside is based upon whether there is a “reasonable expectation” that at
least two small businesses will submit offers and the award will be made at a fair market price.
Assessment and Training Solutions Consulting Corporation v. United States
The Court of Federal Claims’ May 27, 2010, decision in Assessment and Training Solutions
Consulting Corporation v. United States arose from the Army’s decision to use an 8(a) set-aside
in procuring medical training and support services.89 The incumbent contractor, which was not an
8(a) firm, alleged that this decision was based on inadequate market research.90 The contracting
officer had issued a “sources sought” notice, “seeking to identify 8(a) certified small business
sources capable of providing instruction,” as well as searched the SBA Dynamic Small Business
website, the Central Contractor Registration,91 and the Internet.92 The “sources sought” notice, in
84 See, e.g., Kathleen Miller, Veteran-Owned Suppliers May Gain $3 Billion from Griddle Fight, Bloomberg Gov’t,
November 14, 2011.
85 Id. (noting that there is “less price sensitivity among buyers” in a set-aside, than in a “straight-up competition,” and
that the contracting workforce “would be overwhelmed if it ha[s] to research whether veteran-owned companies could
provide the ‘tens or hundreds of thousands’ of purchases it makes through the supply schedules”).
86 48 C.F.R. §2.101.
87 48 C.F.R. §10.001(a)(1)-(2).
88 The FAR provides only that “[a]gencies must ... take advantage (to the maximum extent practicable) of commercially
available market research methods in order to effectively identify the capabilities of small businesses and new entrants
into Federal contracting that are available in the marketplace for meeting the requirements of the agency in furtherance
of (A) [a] contingency operation or defense against or recovery from nuclear, biological, chemical, or radiological
attack; and (B) [d]isaster relief to include debris removal, distribution of supplies, reconstruction, and other disaster or
emergency relief activities” and that “[w]hen performing market research, [agencies] should consult with the local
Small Business Administration procurement center representative.” See 48 C.F.R. §10.001(a)(2)(vi) & (c)(1). See also
Metasoft, LLC, B-402800 (July 23, 2010), at ¶ 6 (“[T]he use of any particular method of assessing the availability of
small businesses is not required.”).
89 92 Fed. Cl. 722 (2010).
90 Id. at 727.
91 Prospective federal contractors are generally required to register in the Central Contractor Registration. 48 C.F.R.
§4.1201(a).
92 92 Fed. Cl. at 725-26.
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particular, yielded nine responses.93 However, only four were from 8(a) small businesses, and
only one was from an 8(a) small business that “demonstrated a capability to perform the required
services.”94 The contracting officer proposed to SBA that the contract be offered as a sole-source
award under Section 8(a).95 However, the procurement was ultimately offered as an 8(a) set-aside
after SBA identified another 8(a) firm capable of fulfilling the agency’s requirements.96 In
protesting this set-aside determination, the incumbent contractor alleged that (1) the materials
furnished by the contracting officer to potential offerors in the “sources sought” notice were “not
detailed enough to permit reasonable responses,” and (2) the responses received, along with the
other market research, did not support the decision to set aside the procurement for 8(a) firms.97
The court disagreed, finding that Subpart 10.001 of the FAR gives contracting officers broad
discretion in conducting market research.98 The court noted that while Subpart 10.001 requires
agencies to “[c]onduct market research appropriate to the circumstances” before taking certain
actions, it also indicates that the extent of market research varies depending on the circumstances
and directs agencies not to request “more than the minimum information necessary.”99 “Given
this regulatory guidance and the discretion afforded … contracting officers,” the court found that
it “[could not] conclude that the market research conducted by the Contracting Officer was
inadequate nor that the Contracting Officer’s 8(a) set-aside decision was unreasonable.”100 The
court also rejected the protester’s argument that FAR Subpart 19.805-1 contemplates “two
separate ‘offers’” of procurements to the SBA, one for sole-source awards and one for set-aside
awards.101 Were this the case, the challenged procurement could have been found to be in
violation of the regulation, since the Army initially offered the procurement to the SBA as a sole-
source award, but the procurement was ultimately conducted as a set-aside. However, the court
found that FAR Subpart 19.805-1 “does not provide for two separate offers but rather directs how
an acquisition is to be awarded once it is ‘offered to the SBA under the 8(a) Program.’”102
Metasoft, LLC
Several moths later, GAO, which had found that it lacked jurisdiction over the protest in
Assessment and Training Solutions,103 also addressed what constitutes adequate market research
for a set-aside determination. In its July 30, 2010, decision in Metasoft, LLC, GAO upheld the
Navy’s decision not to set aside a procurement of software support services for small
93 Id. at 725.
94 Id.
95 Id. at 726.
96 Id.
97 Id. at 729.
98 Id. at 731.
99 Id. (quoting 48 C.F.R. §10.001(a)-(b)).
100 Id.
101 Id. at 732 (“Plaintiff insists that the language of FAR 19.805-1 ‘unquestionably implies that there are two separate
“offers,” one for sole source 8(a) awards, and one for competitive 8(a)’ and that ‘[a]n agency does not comply with
SBA regulations merely by saying ... that a single offering may be used for both competitive and sole source
acquisitions.’”).
102 Id.
103 Id. at 727. The court, in contrast, found that the dispute was within its jurisdiction because the protester was an
“interested party” for standing purposes since, if it succeed in challenging the decision to use an 8(a) set-aside, it could
compete in any subsequent small business set-aside or unrestricted competition. Id. at 728.
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businesses.104 Prior to issuing the challenged solicitation, the Navy had issued a “sources sought”
notice to identify small businesses interested in competing for the requirement.105 However,
although five small businesses responded, the Navy decided not to set aside the procurement for
small businesses because it determined that none of these firms was capable of providing at least
50% of the services itself, as is generally required by statutory and regulatory “limitations on
subcontracting.”106 An 8(a) small business challenged this decision, asserting that the acquisition
should have been totally or partially set-aside for small businesses.107 The protester specifically
alleged that, in determining not to set aside the procurement, the Navy misjudged the protester’s
capacity to perform at least 50% of the requirements in question, as well as based its assessment
of other firms’ capabilities upon incomplete information.108
GAO disagreed, noting that
because the record fails to demonstrate that small business concerns were denied access to
information necessary for the preparation of responses to the sources sought notice, and the
protester has not raised any other timely challenges to the agency’s findings pertaining to
small businesses other than itself, Metasoft has not shown that the contracting officer abused
his discretion in concluding that offers from at least two capable small business offerors
could not be expected.109
GAO further found that the Navy’s determination not to use a partial set-aside was reasonable.110
According to GAO, while FAR Subpart 19.502-3 requires agencies to set aside a portion of an
acquisition for small businesses when the requirement is severable, an agency may consider
whether it is in the government’s best interest to award the services separately, as well as whether
the services may be defined in such a way as to permit them to be awarded separately, in making
this determination.111 The protester had asserted that the requirements here were severable
because the agency was able to define certain services for inclusion in the first task order issued
under the contract, leaving other tasks for later orders.112 The agency, in contrast, had claimed that
“the delivery orders under the contract are so integrally related that only a single source can
reasonably perform the work.”113
104 B-402800 (July 23, 2010), at ¶¶ 1-2.
105 Id. at ¶ 3.
106 Id. at ¶ 4. Under these limitations, small businesses awarded a contract under the authority of the Small Business
Act are generally required to perform certain percentages of the work under the contract. These percentages vary
depending upon the type of the contract (e.g., service, manufacturing, construction). See generally CRS Report
R40998, The Inapplicability of Limitations on Subcontracting to “Preference Contracts” for Small Businesses:
Washington-Harris Group, by Kate M. Manuel.
107 B-402800, at ¶ 5.
108 Id. at ¶ 7.
109 Id. at ¶ 9.
110 Id. at ¶¶ 10-11.
111 Id. at ¶ 10.
112 Id. at ¶ 11.
113 Id. at ¶ 10.
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Gear Wizzard, Inc. v. United States
A later Court of Federal Claims decision in Gear Wizzard, Inc. v. United States similarly upheld a
contracting officer’s decision to cancel a solicitation designated as a small business set-aside
because the contracting officer did not reasonably expect offers from at least two small
businesses.114 The Defense Logistics Agency (DLA) had originally issued a solicitation for shifter
forks, valued at approximately $73,551, as a small business set-aside.115 It received 19 quotes in
response to the solicitation, 17 of which were from small businesses.116 However, after the closing
date for offers, DLA sought to dissolve the set-aside on the grounds that there was not a
reasonable expectation of offers from two or more small business offering the products of small
business manufacturers, as is generally required under the “non-manufacturer rule” contained in
FAR Subpart 19.502-2.117 The “non-manufacturer rule” generally requires that, for small business
set-asides other than for construction or services, “any concern proposing to furnish a product that
it did not itself manufacture must furnish the product of a small business manufacturer.”118 The
plaintiff objected to the agency’s determination to dissolve the set-aside, as well as its subsequent
attempts to procure shifter forks without using a set-aside. Specifically, the protester argued that
the agency violated FAR Subpart 19.502-2(a), which states that “[i]f the contracting officer
receives only one acceptable offer from a responsible small business concern in response to a set-
aside, the contracting officer should make an award to that firm,” when the agency declined to
make an award to it under the initial solicitation.119 The protester further asserted that the agency
violated FAR Subpart 19.502-2(a) by failing to set-aside the procurement for small businesses,
given that at least two small businesses could be expected to make offers to supply its products.120
Subpart 19.502-2(a) provides that
[e]ach acquisition of supplies … exceeding $3,000 … but not over $150,000 … is
automatically reserved exclusively for small business concerns and should be set aside for
small business unless the contracting officer determines that there is not a reasonable
expectation of obtaining offers from two or more responsible small business concerns that
are competitive in terms of market price, quality, and delivery.
The court disagreed, finding that the agency had properly withdrawn the set-aside in accordance
with FAR Subpart 19.506, which authorizes contracting officers to withdraw a small business set-
aside prior to the award of a contract if they “consider[] that award would be detrimental to the
public interest (e.g., payment of more than a fair market price).”121 In reaching this conclusion,
the court noted that the procurement history and market research in the administrative record
supported the conclusion that the solicitation should not have been issued as a small business set-
aside, while nothing in the record supported the plaintiff’s contention that the cancellation was
pretextual.122 The court further noted that FAR 19.502-2(a) did not give the plaintiff “an absolute
114 99 Fed. Cl. 266 (2011).
115 Id. at 268.
116 Id. at 269.
117 Id.
118 See 48 C.F.R. §19.502-2(c). The original solicitation at issue in Gear Wizzard specified that only two manufacturers
offered approved shifter forks, the protester and another concern that was not small. See 99 Fed. Cl. at 269.
119 99 Fed. Cl. at 272.
120 Id.
121 Id. at 275-76.
122 Id. at 278.
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right to the award” because it encourages—but does not require—awards to small businesses that
are the sole bidders or offers on a set-aside procurement.123 Because it found that the agency had
reasonably determined that the “rule of two” was not satisfied, the court also rejected the
assertion that the agency was required to use a small business set-aside.124
Taken together, these three decisions illustrate the high burden that protesters must meet in order
to disturb a set-aside determination because of alleged flaws in agency market research.125 The
deference that judicial and other tribunals accord to agency market research practices is, arguably,
largely due to the FAR’s silence as to what constitutes adequate market research for purposes of a
set-aside determination. However, this silence could result in agencies using set-asides less often
than they potentially could. Factoring the best interests of the government into severability
determinations, as well as granting agencies broad authority to decline to make awards to small
businesses that are the sole bidders or offerors in set-aside procurements could have similar
effects. For this reason, several commentators have recognized Assessment and Training
Solutions Consulting, Metasoft, and Gear Wizzard as potentially significant decisions.126
Market Research for and Withdrawal of Requirements from
8(a) Set-Asides
Other recent decisions construed the statutes and regulations governing set-asides for 8(a)
firms.127 First, in its April 2, 2010, decision in Infiniti Solutions LLC v. United States, the Court of
Federal Claims addressed what constitutes permissible market research to support the award of a
sole-source contract valued below the “competitive threshold” (generally $4 million).128 The
dispute here centered upon a small business regulation, 13 C.F.R. §124.503(e), which provides
that
[e]xcept for requirements for architectural and engineering services, SBA will not authorize
formal technical evaluations for sole source 8(a) requirements. A procuring activity: (1)
[m]ust request that a procurement be a competitive 8(a) award if it requires formal technical
evaluations of more than one Participant for a requirement below the applicable competitive
123 Id. at 280. The court noted that the regulation in question uses “‘should,’ a permissive term that ‘reserves discretion
to the agency,’” instead of “shall,” “will” or some other “mandatory” term. Id.
124 Id.
125 More recent decisions arguably give the same deference to agency market research practices. See, e.g., Encompass
Group, LLC, B-406346 (Mar. 23, 2012) (upholding VA’s determination to set aside a procurement for service-disabled
veteran-owned small businesses because it had conducted market research from which it determined that numerous
eligible businesses were capable and interested in performing the requirements); Kevcon, Inc., B-406101; B-406101.2;
B-406101.3 (Feb. 6, 2012) (upholding VA’s decision not to set aside a procurement because its market research
suggested it would not receive offers from two or more service-disabled veteran-owned small businesses).
126 See, e.g., Daniel Seiden, COFC: Small Business Set-Aside Cancellation Was Rational, Based on Procurement
History, 95 Fed. Cont. Rep. 688 (June 28, 2011).
127 One decision not addressed here, Greystones Consulting Group, Inc., would have allowed agencies to permit
contractors who are found to be other than small to continue performing contracts set aside for small businesses in
certain circumstances. See B-402835 (June 28, 2010). However, regulations promulgated by SBA subsequent to this
decision effectively overturned it by requiring contracting officers to terminate an ongoing contract if SBA concludes
that the awardee is other than small, unless an appeal is timely filed with SBA’s Office of Hearings and Appeals. See
Small Business, Small Disadvantaged Business, HUBZone, and Service-Disabled Veteran-Owned Business Status
Protest and Appeal Regulations, 76 Fed. Reg. 5680 (February 2, 2011) (codified at 13 C.F.R. §121.1009(g)(2)(i)).
128 92 Fed. Cl. 347 (2010).
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threshold amount; and (2) [m]ay conduct informal assessments of several Participants’
capabilities to perform a specific requirement, so long as the statement of work for the
requirement is not released to any of the Participants being assessed.
Where these conditions are not met and the procuring activity competes a requirement among
8(a) firms before offering the requirement to SBA and receiving SBA’s formal acceptance of the
requirement, the procurement generally may not be conducted through the 8(a) Program.129
In Infiniti, the Department of Housing and Urban Development (HUD) argued that a process
wherein vendors made presentations in response to a draft statement of work constituted
permissible market research.130 HUD made a sole-source award to a competitor of Infiniti based,
in part, upon these presentations.131 Infiniti protested, asserting that HUD awarded an “illegal sole
source contract” without following the procedures set forth in the FAR or, alternatively, awarded
the contract competitively on the basis of unstated evaluation criteria.132 GAO dismissed the
protest, finding that HUD’s actions constituted permissible “informal assessments” under 13
C.F.R. §124.503(e)(2) because “no solicitation was issued,” and “there was neither a finalized
statement of work nor a list of evaluation factors for award.”133 The court disagreed. According to
the court, the “draft” statement of work transmitted to vendors by HUD constituted a “statement
of work” within the meaning of 13 C.F.R. §124.503(e)(2), and not merely a synopsis of the
requirements.134 In reaching its conclusion, the court noted that the work statement incorporated
into the awardee’s contract did not “differ in any material respect” from the draft work statement
sent to vendors.135 However, while this conclusion rested upon the fact that the “draft” statement
of work was essentially the same as the final one, the court’s willingness to reverse GAO and
look beyond the agency’s characterization of its conduct is arguably significant. A contrary
decision could have allowed agencies to avoid the prohibition upon competing requirements
below the competitive threshold simply by characterizing statements of work as “drafts.”
In a subsequent decision, K-LAK Corporation v. United States, the Court of Federal Claims
rejected a challenge to an agency’s determination to procure through the Federal Supply
Schedules services that it had previously procured through the 8(a) Program.136 The Air Force,
which had previously obtained credit reports from an 8(a) small business, opted not to extend that
business’s contract after learning that credit reports were available at half the price through the
Federal Supply Schedules.137 The incumbent contractor protested, alleging that the agency’s
proposed course of conduct violated an SBA regulation limiting the “release” of requirements
129 See 13 C.F.R. §124.502(a) (prohibiting agencies from competing requirements among 8(a) firms before they are
accepted by SBA). However, offers of requirements below the simplified acquisition threshold (generally $150,000)
are “assume[d]” to have been accepted at the time they are made, and the agency may proceed with the award if it does
not receive a reply from SBA within two days of sending the offer. 13 C.F.R. §124.503(a)(4)(i). See also Eagle
Collaborative Computing Services, Inc., B-401043.3 (January 28, 2011) (finding that an agency properly awarded a
sole-source contract valued below the simplified acquisition threshold even though SBA never accepted the
requirements).
130 92 Fed. Cl. at 353.
131 Id. at 354.
132 Id.
133 Id.
134 Id. at 358.
135 Id.
136 98 Fed. Cl. 1 (2011).
137 Id. at 2.
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from the 8(a) Program.138 At the time of the procurement, this regulation did not expressly
contemplate—much less authorize—withdrawal of a requirement based on a decision to use the
Federal Supply Schedules instead of an 8(a) contract,139 and SBA agreed with the protester that it
lacked authority to release the requirement from the 8(a) Program.140 The Air Force, in contrast,
asserted that its proposed use of the Federal Supply Schedules was “not the same” as withdrawal
of the requirement from the 8(a) Program.141
The court agreed with the Air Force, finding that the agency was not required to comply with the
Rule of Two or “any of the other regulations applicable to small businesses” because it decided to
use the Federal Supply Schedules after the incumbent contractor’s contract expired.142 In
particular, the court noted that procuring agencies are free to decide whether to use the Federal
Supply Schedules without regard to whether the requirement has been or could be met though a
set-aside program, and 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.143 While regulations
promulgated by SBA on February 11, 2011, impose additional limitations upon withdrawal of
requirements from the 8(a) Program, these regulations do not appear to definitively address
whether the Federal Supply Schedules are “exempt” from small business set-asides.144 In
addition, the court’s view that the “regulations applicable to small businesses” do not apply to
contracts that have “expired” could significantly affect implementation of small business
programs generally if it were widely adopted.
138 Id. at 4.
139 13 C.F.R. §124.504(e) (2010) (“In limited instances, SBA may decline to accept the offer of a follow-on or renewal
8(a) acquisition to give a concern previously awarded the contract that is leaving or has left the 8(a) BD [Business
Development] program the opportunity to compete for the requirement outside the 8(a) BD program. … SBA will
consider release only where (i) [t]he procurement awarded through the 8(a) BD program is being or was performed by
either a Participant whose program term will expire prior to contract completion, or, by a former Participant whose
program term expired within one year of the date of the offering letter; (ii) [t]he concern requests in writing that SBA
decline to accept the offer prior to SBA’s acceptance of the requirement for award an 8(a) contract; and (iii) [t]he
concern qualifies as a small business for the requirement now offered to the 8(a) BD program.”).
140 98 Fed. Cl. at 4.
141 Id. at 5.
142 Id. at 6.
143 Id. at 6-7 (relying, in part, on Subparts 8.404(a), 38.101(e), and 19.502-1(b) of the FAR). Cf. Edmond Computer
Co., B-402863; B-402864 (August 25, 2010) (re-affirming that the FAR’s provisions regarding small business set-
asides do not apply to procurements conducted through the Federal Supply Schedules). It is unclear whether or how the
relationship between small business set-asides and the Federal Supply Schedules might be affected by the Small
Business Jobs Act, which called for the Office of Federal Procurement Policy to establish guidance under which
agencies may set aside parts of multiple award contracts. P.L. 111-240, §1331. While the contracts underlying the
Federal Supply Schedules can be characterized as multiple award contracts, such contracts are governed by different
sections of the FAR than other multiple-award contracts. See, e.g., 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.
144 See Small Business Size Regulations; 8(a) Business Development/Small Disadvantaged Business Status
Determinations, 76 Fed. Reg. 8221 (February 11, 2011) (codified at 13 C.F.R. 124.504(d)(2011) (“Except as set forth
in (d)(4) of this section, where a procurement is awarded as an 8(a) contract, its follow-on or renewable acquisition
must remain in the 8(a) BD program unless SBA agrees to release it for non-8(a) competition.”).
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Applicability of Non-manufacturer Rule and Price Evaluation
Preferences in HUBZone Set-Asides
Yet other decisions have clarified the meaning of the statutes and regulations governing set-
asides, sole-source awards, and price evaluation preferences for HUBZone small businesses.
First, in its January 19, 2011, decision in B&B Medical Services, Inc., GAO clarified that the
“non-manufacturer rule” does not apply to procurements set aside for HUBZone small
businesses.145 The “non-manufacturer rule” provides that:
In order to qualify as a small business concern for a small business set-aside, service-
disabled veteran-owned small business set-aside, [women-owned small business] or
[economically disadvantaged women-owned small business] set-aside, or 8(a) contract to
provide manufactured products or other supply items, an offeror must either: (1) [b]e the
manufacturer or producer of the end item being procured (and the end item must be
manufactured or produced in the United States); or (2) … supply the end item of a small
business manufacturer, processor or producer made in the United States, or obtains a waiver
of such requirement.146
The protesters in B&B Medical Services challenged the terms of VA’s request for proposals for
home oxygen equipment rental and services, alleging that VA failed to apply the non-
manufacturer rule to the procurement, and that its failure to do so resulted in it improperly using a
HUBZone set-aside.147 GAO disagreed, finding that “by the plain language” of the Small
Business Act, the non-manufacturer rule applies only to set-asides for 8(a) firms or for small
businesses generally.148 GAO further noted that the non-manufacturer rule does not apply to
contracts for services, such as those proposed by VA.149 GAO’s decision highlights a difference
between the set-aside programs (i.e., whether they are subject to the non-manufacturer rule) that
could be of interest to Congress given its recent efforts to promote “parity” among the set-aside
programs.150 Under this decision, HUBZone small businesses may compete for set-aside contracts
by supplying the products of large businesses, while 8(a) firms and small businesses generally
typically must supply the products of small businesses.
Later, in Mission Critical Solutions v. United States, the U.S. Court of Federal Claims found that
the SBA regulations regarding HUBZone set-asides require that 35% of a HUBZone firm’s
employees reside in a HUBZone both at the time of the firm’s offer and at the time of award.151
The case arose from SBA’s determination to decertify a HUBZone firm, only 5.5% of whose
145 B&B Medical Services, Inc.; Rotech Healthcare, Inc., B-404241; B-404241.2 (January 19, 2011).
146 13 C.F.R. §121.406(a).
147 B-404241; B-404241.2, at ¶ 9.
148 Id. at ¶ 13. GAO’s analysis here potentially raises some questions about the SBA regulation setting forth the non-
manufacturer rule, because this regulation encompasses set-asides for all small businesses other than HUBZone small
businesses, while GAO found that only the statutory provisions governing set-asides for 8(a) small businesses and
small businesses generally include the non-manufacturer rule. Id.
149 Id. at ¶ 17. Because the non-manufacturer rule did not apply, GAO did not have to address the protesters’ argument
that no HUBZone or small business manufacturers were available, although it noted that the record contains “sufficient
evidence” supporting the agency’s determination. Id. at ¶ 19.
150 See P.L. 111-240, §1347(b)(1), 124 Stat. 2547 (amending the HUBZone act to remove the basis upon which GAO
and the Court of Federal Claims found that HUBZone set-asides are mandatory).
151 96 Fed. Cl. 657 (2011).
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employees currently lived in a HUBZone.152 The HUBZone Act and its implementing regulations
generally require that at least 35% of a firm’s employees reside in a HUBZone for it to be eligible
for certification as a HUBZone small business.153 However, the firm in question challenged its
decertification, alleging that the 35% residency requirement in 13 C.F.R. §126.200(b)(4) applies
only to firms seeking HUBZone certification, and that it, as a current holder of a HUBZone
contract, was instead required only to “attempt to maintain” 35% residency under 13 C.F.R.
§126.103.154 Thus, the firm alleged that it was a qualified HUBZone small business when it bid
for and was awarded an Air Force contract. SBA disagreed with the firm’s proposed interpretation
of its regulations, asserting that the “attempt to maintain” standard in 13 C.F.R. §126.103 applied
only to the performance of an existing contract, and that a firm was not excused from meeting the
35% residency requirement for a new contract because it was currently performing a prior
contract.155 The court agreed with SBA because “[a]s a general rule, the court defers ‘even more
broadly to an agency’s interpretations of its own regulations than to its interpretation of statutes,
because the agency, as the promulgator of the regulation, is particularly suited to speak to its
original intent in adopting the regulation.’”156
While noting that the agency’s interpretation would not necessarily control were it “plainly
erroneous or inconsistent” with the regulations, the court found that the agency’s interpretation
here was neither plainly erroneous nor inconsistent with the regulations since the plaintiff’s
division of the regulations into those applicable to firms seeking certification and those applicable
to firms seeking to remain qualified is “not so clear cut.”157 In particular, the court noted several
provisions that appear to address both obtaining and maintaining certification.158 The court also
agreed with SBA’s argument that plaintiff’s proposed interpretation would thwart Congress’s
intent in enacting the HUBZone program, which was to revitalize economically depressed areas
by promoting employment there.159 A contrary decision could have allowed HUBZone firms to
evade the residency requirements while their certification lasts,160 so long as they had a contract
at the time they submitted bids or offers for a new contract.
Finally, in The Argos Group, LLC, GAO found that price evaluation preferences for HUBZone
small businesses apply to leases, as well as “procurement contracts.”161 This decision arose from
152 Id. at 660-61.
153 Id. at 659 (citing 13 C.F.R. §126.200(b)(4)).
154 Id. at 664-65.
155 Id. at 663.
156 Id. at 662 (quoting Gose v. United States Postal Serv., 451 F.3d 831, 836 (Fed. Cir. 2006)).
157 Id. at 665.
158 Id.
159 Id.
160 Cf. 13 C.F.R. §126.500 (requiring HUBZone firms to recertify every three years).
161 B-406040 (Jan. 24, 2012). In an earlier case, GAO had found that the price evaluation preference for HUBZones in
FAR Subpart 52.219-4 must be applied in procurements involving “best value” tradeoffs, even if the price of the
HUBZone firm is lower than that of the “large” business. B-404952; B-404952.2 (July 8, 2011). In that case, a
HUBZone small business protested the award of a contract for the demilitarization and disposal of ammunition to a
large business that the Army had rated more highly on technical factors, but whose price was $1.3 million higher than
the protester’s price before application of any price evaluation preference. The Army did not deduct 10% from the
protester’s price because the small business had “already submitted the lowest price offer.” It asserted that the
provisions of the HUBZone Act underlying the FAR clause only require that a price evaluation preference be applied
where the offer of the HUBZone small business is higher than that of the large business. The SBA agreed with the
Army’s interpretation of the FAR clause. It also agreed with the Army that, to the degree the FAR clause diverges from
(continued...)
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the General Service Administration’s (GSA’s) attempt to lease space for another federal agency in
Hudson Valley, New York.162 GSA’s solicitation for space did not include a price evaluation
preference for HUBZone small businesses, which the protester alleged was required by the
HUBZone Act.163 GSA disagreed, arguing that the HUBZone price preference was not applicable
to leases, but instead applied only to the procurement of goods and services.164
GAO sided with the protester for several reasons. First, it found that the HUBZone Act applies
“broadly to all federal contracts that involve full and open competition,” and is not limited to a
particular “type” of contract, even though the FAR—which contains the standard clauses
implementing the HUBZone price evaluation preference—applies only to certain contracts for
goods and services.165 Relatedly, GAO found that “there is little dispute” that a lease is a
contract.166 Finally, it observed that “no affirmative authority … omits HUBZone Act
requirements from procurements of leasehold interests in real property.”167
Set-Asides Under the Veterans Benefits, Health Care, and
Information Technology Act
Several decisions specifically addressed set-asides and sole-source awards for veteran-owned and
service-disabled veteran-owned small businesses under the Veterans Benefits, Health Care, and
Information Technology Act of 2006. Arguably the most significant of these decisions was that by
GAO in the Aldevra bid protest, which challenged the VA’s determination to procure certain food
preparation equipment through the Federal Supply Schedules (FSS).168 The VA proposed placing
the challenged orders through the FSS without considering whether a set-aside under the 2006 act
was possible, but conceded that at least two service-disabled veteran-owned small businesses
were capable of meeting some of its requirements.169 The VA defended the proposed procurement
by asserting that “neither the VA Act, nor the VA’s implementing regulations, require the agency
(...continued)
the HUBZone Act, the FAR clause should not be enforced. However, GAO disagreed, finding that the HUBZone Act
can be construed to require price evaluation preferences for offers from HUBZone small businesses that are less than
10% higher than other offers. GAO also found that the FAR clause was enforceable because “we have been presented
no evidence that the Army or SBA (or any commentator) asserted that the FAR provisions were unlawful either during
the notice and comment period, or at any time since.”
162 B-406040, at ¶ 1.
163 Id. at ¶¶ 3-4. The HUBZone Act provides that, in “any case in which a contract is to be awarded on the basis of full
and open competition, the price offered by a qualified HUBZone small business concern shall be deemed as being
lower than the price offered by another offeror (other than another small business concern), if the price offered by the
qualified HUBZone small business concern is not more than 10 percent higher than the price offered by the otherwise
lowest, responsive, and responsible offeror.”
164 B-406040, at ¶ 4.
165 Id. at ¶ 10.
166 Id. at ¶ 11.
167 Id. at ¶ 12.
168 B-405271; B-405524. As several commentators have noted, the use of the Federal Supply Schedules was “optional”
for purposes of the VA’s procurements. See, e.g., Jeff Kinney, VA Should Have Followed GAO’s Ruling in Aldevra,
Attorney Says, 96 Fed. Cont. Rep. 510 (November 15, 2011). The use of the Federal Supply Schedules is “mandatory”
in certain circumstances, and GAO’s decision did not address whether the VA is required to use set-asides for veteran-
owned businesses instead of the mandatory Federal Supply Schedules.
169 B-405271; B-405524, at ¶¶ 6, 9.
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to consider [service-disabled veteran-owned small business] and [veteran-owned small business]
set-asides prior to determining whether to purchase goods or services through the FSS program,”
and that “it has the discretion to determine whether to meet its requirements through the FSS
before procuring from other sources.”170 GAO disagreed. It found that the 2006 act required the
VA to set aside procurements for service-disabled veteran-owned small businesses when the rule
of two is satisfied because it states that the VA “shall” award contracts on the basis of competition
restricted to such businesses when there is a reasonable expectation that two or more such
businesses will submit offers and the award can be made at a fair market price.171 GAO also
found that the 2006 act requires the VA to conduct market research to determine whether a set-
aside for service-disabled veteran-owned firms may be used, although it does not cite the exact
statutory or regulatory language underlying this conclusion.172 In addition, GAO rejected the VA’s
attempt to rely on Subpart 8.404(a) of the FAR as a justification for its actions.173 Subpart
8.404(a) of the FAR expressly provides that the provisions regarding small business set-asides in
Part 19 of the FAR are generally inapplicable to procurements through the Schedules. However,
as GAO noted, the FAR applies only to procurements under the Veterans Benefits Act of 2003,
not to procurements under the 2006 act.174
In an earlier decision, Powerhouse Design Architects & Engineers, Ltd., GAO had found that
procurements of architect/engineer services by the VA are subject to set-asides for small
businesses.175 The VA had proposed conducting the procurements pursuant to the Brooks Act and
its implementing regulations, which generally require that an agency conduct discussions with at
least three firms when procuring architect/engineer services.176 However, a service-disabled
veteran-owned small business challenged this determination, asserting that the procurements
should have been set-aside for veteran-owned small businesses under the 2006 act. GAO agreed,
finding that neither the 2006 act nor regulations promulgated under its authority exempt
170 Id. at ¶ 7.
171 Id. at ¶ 8 (“The provisions of both the VA Act and the VAAR [the Veterans Administration Acquisition Regulation]
are unequivocal; the VA “shall” award contracts on the basis of competition restricted to [veteran-owned small
businesses] when there is a reasonable expectation that two or more [such businesses] will submit offers and award can
be made at a fair and reasonable price.”).
172 Id. at ¶ 9. Based upon a subsequent decision, GAO’s decision here could be construed to mean that the VA cannot
reasonably determine not to use a set-aside for veteran-owned small businesses without conducting market research.
See Kingdomware Techs., B-405727, at ¶ 9 (December 19, 2011).
173 B-405271; B-405524, at ¶¶ 10-16.
174 Id. at ¶ 14. In a subsequent decision, also involving Aldevra, GAO rejected VA’s argument that GAO “should
abandon [its] previous conclusions about the plain meaning” of the Veterans Benefits, Health Care, and Information
Technology Act, and defer to VA’s interpretation of the statute on the grounds that it is ambiguous. Aldevra, B-406205
(Mar. 14, 2012). VA had relied upon language in the 2006 act directing VA to establish goals for contracting and
subcontracting with veteran-owned businesses in arguing that Congress “did not require that this authority [to set aside
procurements for veteran-owned small businesses] be used in conducting all VA procurements.” Id. at ¶ 10. Rather,
according to VA, Congress intended VA to use set-asides in meeting its goals, which meant that VA “may consider its
current achievements vis-à-vis attaining the … contracting goals in deciding whether to do restricted competitions.” Id.
at ¶ 11. GAO, however, rejected this argument because it found that the plain language of the 2006 act requires VA to
use set-asides whenever the rule of two is satisfied. Id. at ¶ 14. In particular, GAO viewed the act’s language regarding
the goals as explaining the purposes for mandating the use of set-asides, rather than creating an exception to such use.
Id. GAO also noted that VA’s proposed interpretation of the 2006 act “is nowhere to be found in [its] 2009 notice and
comment rulemaking,” and that VA was effectively seeking deference for a rulemaking it never performed. Id. at ¶ 18.
See also Kingdomware Techs., B-406507 (May 30, 2012) (adopting the reasoning of the Aldevra decision).
175 B-403174; B-403175; B-403176; B-403177; B-403633; B-403647; B-403648; B-403649 (October 7, 2010).
176 Id. at ¶ 3.
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architect/engineer services.177 GAO specifically rejected VA’s assertion that statements made in
the rule-making process exempting procurements of architect/engineer services from the
requirements of the 2006 act were entitled to deference under Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc.178 In so doing, GAO noted that it did not view the statements in
question as necessarily exempting procurements of architect/engineer services from the
requirements of the 2006 act.179 Further, GAO also noted that “even if the Federal Register
comment and response said what the agency claims, it would not … warrant deference as an
agency interpretation of a statute arrived at through rule-making adjudication” because the
statutory language is unambiguous that certain VA procurements be set aside for veteran-owned
small businesses.180
A later decision by GAO, however, rejected the argument that the Veterans Benefits, Health Care,
and Information Technology Act required VA to use a set-aside for small businesses instead of
procuring items from the AbilityOne procurement list.181 The AbilityOne Program under the
Javits-Wagner-O’Day Act is designed to foster federal procurement from qualifying nonprofit
entities employing handicapped and disabled persons,182 and Subpart 8.002 of the FAR generally
provides that procurements from the AbilityOne list take precedence over small business set-
asides.183 However, the Veterans Benefits, Health Care, and Information Technology Act has also
been construed to require that VA use a set-aside for veteran-owned small businesses when the
rule of two is satisfied, and the protesters in Alternative Contracting Enterprises, LLC, asserted
that VA failed to comply with this requirement when it decided to purchase medical services and
supplies from the AbilityOne list without considering whether the procurements could be set
aside for small businesses.184 VA disagreed, asserting that the VA act “is silent as to how the
statute should operate with respect to the mandatory statutory preference [for AbilityOne],”185 and
that its regulations and guidance regarding the relationship between the 2006 act and AbilityOne
are, thus, entitled to deference. The prologue to these regulations indicates that “AbilityOne’s
priority status has not been changed as a result of this rule.”186 VA procurement guidelines
similarly instructed contracting officers that items currently on the AbilityOne list would continue
to take priority over set-asides for veteran-owned businesses, and that, for new requirements,
contracting officers should first determine whether the requirements should be set aside for
veteran-owned small businesses before considering placing the requirement on the AbilityOne
list.187
177 Id.
178 Id. at ¶ 10-11 (discussing applicability of Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837
(1984)).
179 Id. at ¶ 11.
180 Id. at ¶ 12.
181 Alternative Contracting Enters., 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).
182 See generally CRS Report RL34609, The Randolph-Sheppard Act, by Umar Moulta-Ali.
183 See 41 U.S.C. § 8504(a).
184 B-406265, at ¶¶ 1, 8.
185 Id. at ¶ 9.
186 Id. at ¶ 6.
187 Id. at ¶ 6. In an earlier case, Angelica Textile Services, Inc. v. United States, the U.S. Court of Federal Claims had
found that these guidelines explicitly applied to procurements begun prior to their issuance and were entitled to
deference under Skidmore v. Swift & Co. 95 Fed. Cl. 208, 222 (2010). “Skidmore deference” is a more “limited form of
(continued...)
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GAO agreed with VA, finding that the “two statutes 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.188
Because it found that Congress had left a gap for VA to fill in determining how set-asides for
veteran-owned small businesses were to be reconciled with the AbilityOne program, GAO further
found that VA’s interpretation of the act was entitled to certain deference.189 Given that this
interpretation was not the product of formal rulemaking, GAO declined to give it deference under
Chevron.190 However, GAO found that it was entitled to Skidmore deference, and that the
protesters’ arguments, thus, failed because they had “not shown [VA’s interpretation] to be
inconsistent with the statutes or unreasonable.”191 In reaching this conclusion, GAO specifically
rejected the protesters’ assertion that VA’s interpretation was unreasonable because it failed to
“give weight” to the more recent and specific VA act.192 It did so because it viewed the two
statutes as not conflicting, and “a more specific statute trumps an earlier general one only when
the two statutes are in conflict.”193
Overall, these decisions should help promote awards to veteran-owned and service-disabled
veteran-owned small businesses by giving them “priority” not only over other small businesses,
as provided for in the 2006 act, but also over procurements from the Federal Supply Schedules, or
under the Brooks Act. Moreover, while veteran-owned businesses do not have such preference
over the AbilityOne list, it would appear that an alternate interpretation of the 2006 act, granting
them such preference, could potentially be found reasonable if VA were to adopt such an
interpretation.
(...continued)
deference” than Chevron deference, discussed above, based on “the thoroughness evident in [the agency’s]
consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors
which give it the power to persuade, if lacking the power to control.” United States v. Mead Corp., 533 U.S. 218, 228
(2001) (citing Skidmore, 323 U.S. 134, 140 (1944)). According to the Angelica court, the guidelines requiring
contracting officers to research whether veteran-owned businesses could supply requirements before adding them to the
AbilityOne List warranted Skidmore deference because VA is responsible for implementing the 2006 act; its guidelines
provide detailed instruction to “fill[] a space between the [2006 act], the Javits-Wagner-O’Day Act, and their
accompanying regulations; and VA’s instructions in the guidelines are consistent with the general maxim of statutory
interpretation that “a specific statute of specific intention takes precedence over a general statute, particularly when the
specific statute was later enacted.” 95 Fed. Cl. at 222.
188 B-406265, at ¶¶ 12-13.
189 Id. at ¶ 13.
190 Id. at ¶ 15.
191 Id. at ¶ 16.
192 Id.
193 Id. (quoting Morton v. Mancari, 417 U.S. 535, 550-51 (1974)).
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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
Acknowledgments
CRS Law Clerk Jonathan Miller assisted in drafting this report, particularly the descriptions of the cases
discussed herein.
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