Link: GAO Opinion
Agency: U.S. Army Material Command
Disposition: Protests denied.
Keywords: Rule of two
General Counsel P.C. Highlight: “The Rule of Two”: any procurement valued at over $100,000 where there is a reasonable expectation that two or more responsible small businesses will submit proposals and where there is a reasonable expectation that award will be made at a fair market price, must be set aside exclusively for small business competition.
In 2008, the Army issued a solicitation for the award of multiple indefinite-quantity/indefinite-delivery contracts to provide body armor components in support of the government’s foreign military sales program. Pursuant to this solicitation, the Army made four awards to four different companies: Armacel Armor Corp., ArmorWorks Enterprises, LLC, Ceradyne, Inc., and Composix Co. In June of 2009, the Army received five purchase requests for four different countries. It decided to set aside the Lebanon, Tunisia, and Senegal requests for the two small business contract holders – Armacel and ArmorWorks – and solicited quotes from these firms. The Army also issued a delivery order request for the Afghanistan requirement, a delivery order that was then issued to Ceradyne.
The Army had intended the Afghanistan requirement to be issued on an unrestricted basis, but mistakenly solicited quotes from only the two largest firms (Ceradyne and Composix). ArmorWorks filed a protest and the Army took corrective action by reopening the competition for all contract holders and modifying the selection criteria. Prior to the closing date of the new competition, ArmorWorks filed another protest challenging the Army’s decision to not set aside the Afghanistan order for small business concerns. The Army asked each of the two small business contract holders whether each one could meet the higher production capacity and delivery schedule of the Afghanistan task order. Each small business said it could. Therefore, the Army decided that the requirement would be set aside for the small business contract holders exclusively. Ceradyne then filed a protest.
Ceradyne argued that the Army’s decision to set aside the order for the small business contract holders was unreasonable because the Army failed to scrutinize the capability of the small business concerns in making its set-aside decision.
Pursuant to FAR § 19.502-2, any procurement valued at over $100,000 where there is a reasonable expectation that two or more responsible small businesses will submit proposals and where there is a reasonable expectation that award will be made at a fair market price, must be set aside exclusively for small business competition. This is considered the “rule of two.” Agencies need only undertake reasonable efforts to locate responsible small business competitors that could be expected to submit proposals at a fair market price.
The GAO held that, with the award of the underlying ID/IQ contract to two small businesses, the Army already knew that it had two responsible small businesses who could perform the work at issue. Once a firm has been determined to be responsible and is awarded the contract there is no requirement that the agency make an additional responsibility determination during contract performance (i.e., when placing delivery orders). Agencies need only make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract. Therefore, when the Army inquired of each small business if they could meet the capacity and delivery requirements, the Army had a reasonable basis to conclude that the “rule of two” has been met. As such, the Army was not required to subject Armacel and ArmorWorks to a higher level of scrutiny. Ceradyne’s protest was denied.