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FAR Council: “Contract” Does Not Include “Order” in SBA Law

by | Apr 20, 2020 | Government Contracts

The new FAR regulations dealing with the small business programs in FAR Part 19 recently adopted by the FAR Council can get lost in the news of the coronavirus and the need for contractors to find ways to keep their doors open. But, buried among the 28 pages of 3-column Federal Register text is guidance that should put to rest a recurring but erroneous argument heard in the procurement world. That argument claims that, based on a U.S. Supreme Court decision, that the word “contract” must be interpreted to also include the word “task order” and, therefore, certain small business set-asides required for contracts are also mandatory for orders. According to the FAR Council, that is not true. Some set-asides are discretionary.

In 2016, the U.S. Supreme Court in Kingdomware Techs., Inc. v. United States, 136 S. Ct. 1969 (2016) considered a Department of Veterans Affairs procurement involving the VA’s proper use of the “Rule of Two.” That rule, for example, requires an agency to set aside procurements with an anticipated value between the micro-purchase threshold and the simplified acquisition threshold for small business unless two or more small businesses are not expected to submit offers that are competitive in terms of price, quality, and delivery. In the court’s decision, it concluded that the word “contract” in the VA’s procurement statute included task orders as well, even though the VA statute did not mention task orders. As a result, when the VA law mandated the use of the “Rule of Two” in certain procurements for contracts, it also mandated the rule’s use in the procurement of task orders under that contract.  

For several years since that decision, some procurement professionals have argued that wherever in procurement law the word “contract” is used, it must be interpreted to mean “order” because the Supreme Court said so. This argument was made to the FAR Council as it was considering changes to FAR Part 19. Several commenters on the proposed FAR Part 19 changes argued that,  when Congress amended the small business law in 2013 to mandate the use of the “Rule of Two”  for the solicitation of “contracts” with a value between the micro-purchase threshold and the simplified acquisition threshold (SAT), Congress also meant that solicitations for “orders” between the micro-purchase threshold and the SAT were subject to the Rule of Two. 

The FAR Council disagreed and refused to adopt that argument, keeping orders between the micro-purchase threshold and the SAT subject to the contracting officer’s discretionary use of the Rule of Two. 

More importantly, perhaps, the FAR Council explained why its position was not counter to the ruling of the highest court in the land.

The FAR Council’s rationale, basically, was that the Supreme Court was interpreting a different law, a procurement law specific to VA buys and not the law that Congress used to set up the SBA’s set-aside program. Moreover, the VA’s law itself addressed only contracts, making no mention of orders.  Because the VA’s law was silent on the handling of orders, “the Court concluded that the mandate applicable to contracts also applied to orders, since orders have the legal effect of contracts. By contrast, the Small Business Act has separate and distinct provisions addressing contracts and orders and addresses each in a different manner.” 85 FR 11748. 

The FAR Council, presumably, has thus ended attempts to use the Supreme Court’s interpretation of the VA procurement law to expand the interpretation of the word “contract” to the SBA’s procurement law that applies to all agencies. 

Terrence O’Connor is a Partner and Director of Government Contracts at Berenzweig Leonard.