Protest Sustained: VA Based “Rule of Two” Determination on Canceled Set-Aside SolicitationThe Government Accountability Office (GAO) recently sustained a protest that challenged the Department of Veterans Affairs’ (VA) failure to set aside an acquisition for Service-Disabled Veteran-Owned Small Businesses (SDVOSB) or Veteran-Owned Small Businesses (VOSB). Under the Veterans Benefits, Health Care, and Information Technology Act of 2006 (VA Act), 38 U.S.C. §§ 8127-8128, the VA must set aside acquisitions for SDVOSBs and VOSBs whenever there is a reasonable expectation that the VA will receive offers from at least two SDVOSBs and VOSBs capable of performing at a fair and reasonable price. This is commonly known as the “Rule of Two.”

After conducting market research, the VA initially set aside certain contract line item numbers (CLINs) for SDVOSBs and VOSBs using a tiered evaluation approach. The initial Request for Proposals (RFP) resulted in numerous protests and, as a result, the VA canceled the RFP.  Based on the proposals it received in response to the initial RFP, the VA then determined that the acquisition would not meet the requirements of the Rule of Two.  The VA, therefore, issued the new solicitation on an unrestricted basis, i.e., without setting it aside for SDVOSBs or VOSBs.  Importantly, the VA also removed the requirement that offerors comply with the Service Contract Labor Standards (SCLS), which sets minimum wage and fringe benefit standards for workers.  The record indicated that several prospective offerors, including the protester, had submitted questions objecting to the burden associated with the inclusion of the SCLS in the initial solicitation.

In deciding the protest in the protester’s favor, the GAO pointed out that, while contracting officers must make reasonable efforts to determine whether it is likely that a procurement will meet the requirements of the Rule of Two, it is unreasonable for a contracting officer to base its decision on outdated or incomplete information.  The GAO also noted that an agency may rely on the results of a canceled procurement when deciding whether to set aside a new procurement when the two solicitations are the same.   Here, the requirements of the reissued solicitation were different.  The GAO agreed with the protester that the requirement in the initial solicitation that offerors comply with the SCLS had a material effect on the competitive field because it deterred competition.

The agency argued that the contracting officer had considered the competitive impact of removing the SCLS requirement and found its removal to be immaterial.  However, the GAO determined that the contracting officer’s explanation addressed only whether the removal of the SCLS requirement could be expected to have an impact on the offerors’ prices — and did not consider its impact on the offerors’ decision to compete.

The GAO, therefore, sustained the protest, concluding that the VA failed to reasonably evaluate the effect that the removal of the SCLS requirement would have on the willingness of SDVOSBs and VOSBs to compete.  Thus, when an agency cancels a set-aside solicitation and issues a new, unrestricted solicitation, contractors that would have benefited from the set-aside should compare the two solicitations to determine whether there are any material changes and, if so, whether such changes may have impacted an offeror’s decision to compete.