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Friday, October 22, 2010

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

Kate M. Manuel
Legislative Attorney

In government contracting law, a “set-aside” is a procurement in which only certain businesses can compete. Set-asides can be exclusive or partial, depending upon whether the entire procurement, or just part 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, federal law provides, in various ways, for set-asides for (1) small businesses generally, (2) small businesses located in Historically Underutilized Business Zones (HUBZones) (HUBZone small businesses), (3) service-disabled veteran-owned small businesses (SDVOSBs), (4) small businesses owned and controlled by socially and economically disadvantaged individuals that are participating in the Minority Small Business and Capital Ownership Development Program authorized by Section 8(a) of the Small Business Act (8(a) small businesses), and (5) womenowned- and-controlled small businesses.

On September 27, 2010, President Obama signed the Small Business Jobs and Credit Act of 2010 (P.L. 111-240) which amends several provisions of the Small Business Act pertaining to setasides. P.L. 111-240 changes certain language in the provisions regarding HUBZone set-asides to make clear that agencies may—but are not required to—use HUBZone set-asides when there is a reasonable expectation that at least two qualified HUBZone small businesses will submit offers and the award can be made at a fair market price. P.L. 111-240 also expressly authorizes agencies to set aside parts of multiple-award contracts for small businesses; place orders under multipleaward contracts with small businesses without complying with certain procedures ensuring that firms holding such contracts generally have a “fair opportunity to be considered” for orders under them; and “reserve” one or more awards for small businesses under “full and open multiple award procurements.”

P.L. 111-240 was enacted in response to a series of decisions in 2008-2010 by the U.S. Court of Federal Claims and the Government Accountability Office (GAO) interpreting the provisions of the Small Business Act establishing or implementing the set-aside programs for small businesses. One of these decisions, DGR Associates, Inc. v. United States, issued by the Court of Federal Claims on August 13, 2010, permanently enjoined the government from using an 8(a) set-aside when there is a reasonable expectation that at least two qualified HUBZone small businesses will submit offers and the award can be made at a fair market price. The court did so based, in part, on the interpretation of the Small Business Act set forth in its March 2, 2010, decision in Mission Critical Solutions v. United States. In Mission Critical Solutions, the court held that set-asides for HUBZone small businesses have precedence over those for 8(a) small businesses because HUBZone set-asides are mandatory while 8(a) set-asides are discretionary, and mandatory agency actions take precedence over discretionary ones. Another decision, Delex Systems, Inc., issued by GAO on October 28, 2008, recommended that orders issued under such contracts be subject to set-asides for small businesses because they are “acquisitions,” and any acquisition over $150,000 is subject to set-asides for small businesses.

However, despite the enactment of P.L. 111-240, questions remain as to whether the executive branch gave any required “precedence” to HUBZone set-asides in procurements conducted prior to the enactment of P.L. 111-240, and whether the Small Business Administration or the Federal Acquisition Regulation Council will reintroduce previously proposed regulations that would explicitly provide for parity among the set-aside programs. While P.L. 111-240 removes the language that prompted GAO and the courts to find that HUBZone set-asides have precedence, it does not amend the Small Business Act to expressly provide for parity among the set-aside programs.

Date of Report: October 8, 2010
Number of Pages: 25
Order Number: R40591
Price: $29.95

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