The "FAR Loophole" let the Government buy from China. A Federal court just closed it.

Plus bipartisan support for keeping the Rule of Two, when "to the extent" means more than "if," and COFC wants more analysis of veteran control

In recent years, SBA has received some blame for a “Made in China loophole.” The loophole worked like this: Under most circumstances, agencies cannot contract for products manufactured in China when a product from a trade-agreement country, such as Canada, would suffice. The Trade Agreements Act mandates that products manufactured in so-called designated countries take precedence over those from other countries, such as China and India.

But if the agency set aside the contract for small businesses, it received an exemption from the TAA. This required the agency to get a waiver of the nonmanufacturer rule from SBA. Otherwise, that rule would require that a U.S. small business be the manufacturer. That’s where the blame came from: Because SBA granted most nonmanufacturer rule waivers, it looked like SBA was letting agencies buy Chinese products.

It was never really SBA’s fault. The reason for the loophole was the broad FAR rule that exempts small-business set-asides from the TAA. The Coalition for Government Procurement properly called this a “FAR loophole.”

Now, the Court of Federal Claims has seemingly closed the loophole. In The DaVinci Company, LLC v. United States, No. 24-1238, August 7, 2025, Senior Judge Loren Smith referred to the VA’s use of a set-aside to procure a prostate drug from India—not a designated country under the TAA—as a “scheme.” Citing Loper Bright, the judge ruled that the VA’s use of the FAR set-aside exemption violates the statutory text and intent of the TAA. “No agency can—or, frankly, should—administratively repeal Congress’s work,” Judge Smith wrote. The court issued the permanent injunction sought by a firm that offered a drug manufactured in Spain.

The judge’s decision reached that conclusion by reading the set-aside exemption narrowly:

The TAA applies to all procurements except for when a [Buy American Act] domestic preference is invoked. If once an agency later waives its BAA invocation, like the VA did here, the TAA’s obligations reassert themselves onto the procurement.

In other words, an agency can get around the TAA if it uses a small business set-aside to buy from a domestic small business. In that case, a trade-agreement country’s product wouldn’t displace the U.S.-made product. But, once the agency starts getting waivers—from SBA for the nonmanufacturer rule and from OMB for Made in America laws—the TAA applies. This is the right result, and if the FAR reflects this position in its overhaul of Part 25, it will close the loophole that let agencies buy from China.

Bipartisan support for the Rule of Two emerges

Senator Ed Markey has been on a roll with small-business bills, and his latest bill to put the Rule of Two into statute has attracted bipartisan cosponsors in Alaska Senators Sullivan and Murkowski. As ranking member of the Senate Committee on Small Business and Entrepreneurship, Markey had previously introduced bills to reauthorize SBIR, exempt small businesses from tariffs, and preserve jobs at the SBA. Now, with his Rule-of-Two bill, Markey seeks to address the concern that the FAR Overhaul might eliminate the Rule of Two as not explicitly based in statute.

Senator Joni Ernst is the chair of the Senate Small Business Committee. Two years ago, she sponsored a bill to not just codify but expand the Rule of Two. She has not signed on to Markey’s bill, however, and, as far as I know, has been silent on support for the Rule of Two.

On the House side, ranking member Nydia Velázquez’s bill to put into law the Rule of Two came out in April but attracted only Democratic cosponsors.

The big question now becomes, are the FAR Overhaul drafters paying attention to this Congressional support for the Rule of Two?

A sustained GAO protest shows that “to the extent” means more than “if”

The women-owned small business in emissary LLC, B-422388.3, B-422388.4, won its GAO protest against DOD’s Washington Headquarters Service for multiple reasons. These included an organizational conflict of interest issue that had befuddled the agency for over a year. The most interesting issue to me, though, was how GAO interpreted the phrase “the extent to which.”

Lawyers often use that phrase as a fancy way to say “if”—look at GAO’s decision in SOS International, B-423516, B-423516.2:

To the extent the protester argues that its combination of experience, qualifications, and certifications exceeded performance requirements demonstrates an “appreciably advantageous” proposal, such argument merely disagrees with the agency’s evaluation judgment and does not provide us with a basis to sustain the protest.

In that quote, there’s no functional difference between the phrase “to the extent” and “if.”

But, the more I think about it, lawyers are not using the phrase correctly. And GAO itself came to that conclusion in emissary. DOD’s solicitation stated that the agency would evaluate phase-in plans “on the extent to which the Offeror’s plan is determined to demonstrate detailed methods the Offeror will implement to become fully functional.” But DOD graded the phase-in plans as pass/fail. GAO found against the agency, explaining:

Where a solicitation indicates that the agency will evaluate the “extent” a proposal meets a particular requirement, offerors can reasonably expect that a proposal exceeding the agency’s minimum requirements will garner a more favorable evaluation than one that merely meets the requirements.

COFC expects more analysis from SBA OHA on veteran control

In Veteran Elevated Solutions, LLC v. United States (No. 24-1882, August 1, 2025), COFC remanded a status protest to SBA’s Office of Hearings and Appeals for inadequate analysis on whether a veteran controlled a service-disabled veteran-owned small business. The court noted that the veteran lived in Oregon while the business operated in Florida. OHA’s decision relied on older evidence and didn’t explain how Armstrong controlled the company when it submitted its offer in April 2024, Judge Lerner wrote.

On remand, the case of Armstrong’s control will get a new judge at SBA. The prior OHA decision was issued by Judge Kenneth Hyde, but he has since left the agency. The new judge—almost certainly the remaining OHA judge, Christopher Holleman—is under time pressure to issue a new decision. COFC gave OHA just 45 days.

Sam Le is a Virginia- and D.C.-licensed attorney. His website is www.samlelaw.com.