GAO Reaffirms that Agencies Have Discretion in Deciding to Set Aside Task Orders Under Multiple Award Contracts; ITility, LLC, GAO B-419167


Protest challenging agency’s decision to not set aside a task order for small businesses is denied. The protester and the SBA contended that the Rule of Two applies to task orders issued under a multiple award contract. The protester claimed that in this case, two or more business were capable of performing at a reasonable price, so the agency erred in not setting aside the task order for small businesses. After reviewing its own precedent and relevant regulations, GAO found that the Rule of Two does not mandate set asides for task orders under a multiple award contract. Rather, agencies have discretion in deciding whether to set aside a task order.

In 2018, the Department of Homeland Security (DHS) awarded a task order. to ITility, LLC. Under the task order, ITility provided technical support services to DHS’s Joint Program Management Office (JPMO). But in 2020 DHS reorganized the JPMO and determined that ITility’s task order no longer provided the expertise and support it needed.

DHS conducted extensive market to assess its acquisition approach. The agency looked into a variety of contracting vehicle—including GSA’s One Acquisition Solution for Integrated Services, GSA’s Veterans Technology Services 2 contract, and GSA’s 8(a) STARS II contract. DHS ultimately selected GSA’s Alliant 2 as the proper contract vehicle. GSA released an unrestricted RFQ to Alliant 2 holders seeking IT services for the JPMO and selected Enterprise Information Services for award.

ITility was not an Alliant 2 holder and thus did not know that DHS had issued the RFQ. When ITility learned of the award to Enterprise, it filed a protest, arguing that under the FAR’s Rule of Two, DHS should have set aside the procurement for small businesses. GAO invited the Small Business Administration to offer its opinion on the protest.

As an initial matter, DHS argued that ITility’s protest was untimely. The agency contended that the ITility’s challenge to the set aside decision was really a challenge to the terms of the solicitation. Thus, ITility should have filed its protest before the proposal deadline not after award.

But GAO noted that if an agency’s actions preclude the possibility of filing a timely challenge to the terms of the solicitation, a protester may file within 10 days of learning the grounds of the protest. GAO reasoned that because ITility was not an Alliant 2 contract holder, it did not have access to the solicitation or even know that DHS was procuring requirements under the Alliant 2 contract.

DHS, however, argued that ITility’s protest was untimely because the company failed to exercise diligence once DHS indicated that it was not exercising the option under ITility’s task order. GAO, however, found that DHS never clearly articulated a decision to pursue its requirements on an unrestricted basis. Thus, rather than a lack of diligence, ITility’s inability to ascertain the status of the follow-on acquisition was due to DHS’s own actions.

DHS argued that ITility had constructive notice of the agency’s intent to not set aside the procurement because DHS posted the forecasted procurement on the agency’s Acquisition Planning Forecast System. GAO rejected this argument noting that the DHS’s acquisition system was not a government-wide point of entry designated for the publication of solicitations. Also, the forecast posted on was tentative forecasting, not the issuance of a solicitation sufficient to put ITility on notice.

GAO then turned to the merits of the protest, that is, whether the DHS erred in not setting aside the procurement. GAO noted that under the Rule of Two, codified at FAR 19.502-2(b), an agency must set aside an acquisition for small businesses if offers can be obtained from at two responsible small businesses at a reasonable price.

Neither the Small Business Act nor SBA’s regulations expressly addressed whether the issuance of an order under a multiple award contract was subject to the Rule of Two. In 2008, GAO held that the Rule of Two applied to competitions for task and delivery orders, reasoning that, by its language, the rule applied to “any acquisition.”

In 2010, Congress amended the Small Business Act stating that agencies may set aside orders under multiple award contracts “at their discretion.” Also, in 2011, the FAR was amended to provide that agencies “may, their discretion” set aside orders under multiple award contract for small businesses. By 2013 SBA had promulgated its own regulations incorporation the “discretion” language.

In Edmond Scientific Co., B-410179, B-410179.2, Nov. 12, 2014, 2014 CPD ¶, GAO first interpreted the new rules. In that case, the protester alleged the Army should have set aside a task order for small businesses. But GAO found that the plain language of the regulations granted discretion to the agency in deciding whether to set aside the procurement. GAO noted that its previous holdings on this issue had been superseded by legislation granting agencies discretion.

The “discretion” language was challenged again the following year in Aldevra, B-411752, Oct. 16, 2015, 2015 CPD ¶ 339. There, the SBA argued that GAO had misinterpreted the discretion given to agencies in setting aside task orders. SBA argued that the new regulations did not give agencies discretion in deciding whether to set aside orders under a multiple award contract. Rather, SBA argued, the new regulations were merely an exception to fair opportunity requirements. Agencies are required by statute to provide all holders of a multiple award contract an opportunity to compete for resulting task orders. SBA contended that the new regulations simply gave agencies the discretion to set aside orders as an exception to the opportunity to compete; they did not give agencies discretion to not set aside orders if there were two capable small businesses.

Alas, GAO rejected this argument finding that the statue enacted by Congress and its implementing regulations, by their plain terms, gave agencies discretion to apply the Rule of Two to task order,s not discretion to set simply set aside task orders.

GAO noted that ITility’s protest reflected disagreement with GAO’s prior holdings. Nevertheless, there had been no changes in the law over the intervening years that would cause GAO to reject its prior cases. In fact, subsequent amendments to the FAR supported GAO’s interpretation. A recent Federal Register notice had rejected public comments suggesting that agencies lacked discretion to not aside task orders for small businesses.

ITility argued that one of GAO’s previous cases on this issue—Edmond Scientific—was not controlling. In that case, ITility argued, the protester was a holder of an IDIQ contract, challenging the task order from “inside” the IDIQ, while in this case ITility did not hold an IDIQ contract for the challenged award and thus was “outside” the IDIQ. Thus, the previous case was a discrete challenge involving the set aside an individual order while this was a challenge as to whether the agency properly chose a contract vehicle with no small business competition.

GAO, however, did not find the cases distinguishable. There is no distinction between being “inside” or “outside” an IDIQ. Here, and in previous cases, the protesters were challenging the award of task order. Additionally, ITility’s argument suggested that that a small business without an IDIQ contract had a better ability to challenge a set aside decision than a contractor that holds the contract under which the order itself is issued. GAO saw no basis for such disparate treatment.

Indeed, GAO found, the argument created a logical impossibility. If ITility was right and a Rule of Two analysis was required before an agency selects an IDIQ contract vehicle, then it was not apparent how an agency could ever get “inside” the IDIQ to exercise its discretion. If the Rule of Two was satisfied, the agency would have to set the contract aside. If the Rule of Two was not satisfied, the contracting officer would not need discretion because there would be no small business capable of performing the contract.

ITility is represented by Isaias Alba, IV, Jacqueline K. Unger, Christine C. Fries, and Jonathan I. Pomerance of Piliero Mazza PLLC. The intervenor, Enterprise Information Services, is represented by Alexander B. Ginsburg, Meghan D. Doherty, Robert Starling, and Kevin R. Massoudi of Pillsbury Winthrop Shaw Pittman LLP. The Department of Homeland Security is represented by Christine Fontenelle and Pavan Mehrota. The Small Business Administration is represented by John W. Klein and Sam Q. Le. GAO attorneys Evan D. Wesser and Edward Goldstein participated in the preparation of the decis

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