The FAR Overhaul of Part 13 isn't as bad as it seems
The Simplified Acquisition Procedures covered 94% of small-business buys, but it's been renamed Simplified Procedures for Noncommercial Acquisitions.
In the latest FAR Overhaul drop on Thursday, the FAR Council completely gutted Part 13 on Simplified Acquisition Procedures. My git-style Diffchecker calculates that the FAR Council changed 98% of the words in Part 13 and 99% of the lines. (The former part and overhauled part only share a few headers.) If you liked Part 13, this may look like absolute carnage. But it’s not as bad as it seems. As shown in the acquisition.gov graphic above and the following crosswalk, most of Part 13 was merely moved to Part 12 on Commercial Acquisitions:
(The crosswalk is a multi-page table, so you may need to view this article in a browser to see the whole thing.)
To be sure, any change to Part 13 is going to be impactful to small businesses. An astounding 94% of new small-business awards are awarded using simplified acquisition procedures (that’s based on the raw count, not by dollar amounts). Those are all currently conducted under the existing Part 13. In the overhauled FAR, about one-third of those will get processed under the new Part 12 as commercial acquisitions. That one-third will grow over time if agencies change their behavior to favor commercial procedures.
The remaining simplified actions will proceed under the overhauled Part 13 as noncommercial acquisitions below the simplified acquisition threshold. The FAR Overhaul will be changing the name of Part 13 to “Simplified Procedures for Noncommercial Acquisitions.” That means the overhauled Part 13 has a different scope, covering only noncommercial acquisitions. The text is basically all new (83% new words, based on Diffchecker).
So what may change is that more acquisitions get treated as commercial and therefore be processed under Part 12 instead of Part 13. Those Part-12 contracts will be subject to a set of predefined contract clauses in overhauled FAR 12.205.
What will happen to set-asides?
But will fewer contracts be set aside for small businesses? Not because of the overhauled Part 13 itself, and here’s why: The law still requires set-asides. In particular, section 15(j) of the Small Business Act requires that contracts be set aside for small businesses under the Rule of Two, subject to two dollar-based thresholds:
Each contract for the purchase of goods and services that has an anticipated value greater than the micro-purchase threshold, but not greater than the simplified acquisition threshold shall be reserved exclusively for small business concerns unless the contracting officer is unable to obtain [competitive] offers from two or more small business concerns.
This is the statutory Small Business Rule of Two, meaning it is set forth in a legislative statute. There’s another Rule of Two—sometimes called the regulatory Rule of Two—that kicks in when the statutory Rule of Two doesn’t apply. The easy way to tell them apart is the dollar amount: The statutory Rule of Two applies between the micropurchase threshold (increasing to $15,000 on Oct. 1) and the simplified acquisition threshold ($350,000 on Oct. 1). Above the simplified acquisition threshold, the regulatory Rule of Two applies.
The statutory Rule of Two isn’t going anywhere. It’s been in the statute since 1977. Because of the rule, contracts below the simplified acquisition threshold must be set aside for small businesses unless there would not be competitive offers from two or more small businesses. The White House’s budget office has proposed to change the term “simplified acquisition threshold” to a lower dollar amount, but, fortunately for small businesses, the budget office doesn’t have that authority on its own. That change would need to come through Congress.
In fact, the statutory Rule of Two is reflected in the overhauled Part 13. Section 13.102 reads:
Acquisitions of supplies or services that have an anticipated dollar value above the MPT, but at or below the SAT, must be set aside for small business concerns (see part 19).
One concern I’ve heard is that the overhauled Part 12—the one on commercial acquisitions—doesn’t reflect the statutory Rule of Two. That’s correct in a sense. The first OMB-stated purpose of the overhaul is to “eliminate non-statutory and duplicative regulations.” Putting the statutory Rule of Two in Part 12 would be duplicative because that rule will appear in overhauled Part 19, which hasn’t yet been released. (I’ve worried about whether a Rule of Two might be narrowed in Part 19, but that was referring to the FAR Rule of Two, not the statutory one.) I have no doubt that Part 19 will include the statutory Rule of Two; the whole overhaul exercise is designed to return the FAR to its “statutory roots.”
In another sense, the statutory Rule of Two actually appears in overhauled Part 12. It’s just hidden. The long list of predefined contract clauses for Part 12 acquisitions includes FAR clause 52.219-6, “Notice of Total Small Business Set-Aside.” Whenever an agency uses that clause, the solicitation is set aside for small businesses. The long list in Part 12 designates 52.219-6 as statutory. This means that contracts must include the set-aside clause whenever the statutory Rule of Two applies. So it’s not that Part 12 ignores set-asides altogether; they’re just incorporated in a roundabout way through that FAR clause.
All this analysis aside, I still expect that the number of set-asides will go down. But it won’t be because of the overhaul of Part 13. Instead, there are two reasons that set-asides would decrease.
First, as the government starts to prioritize commercial acquisitions, the commercial preference might overtake the small-business preferences. This was a real concern after the Federal Circuit decided Palantir USG v. United States, a 2018 case that broadened the commercial mandate from the Federal Acquisition Streamlining Act. If small businesses can’t provide the commercial products or services, the government would award to a large business that can, the theory goes. But the Palantir USG case was decided six years ago, and set-asides have increased every year since (though they appear to have leveled off this year). So that experience doesn’t indicate that small businesses will suffer majorly in a world with a commercial mandate.
Second, set-asides might decline because the FAR Overhaul creates a preference for awards through task orders on governmentwide contracts like the GSA Schedule. The FAR Council argues that set-asides on those contracts are discretionary, not mandatory under the Rule of Two. SBA tried to change that. But earlier this year, the FAR Council withdrew a proposed rule that would have required set-asides of task orders under an order-level Rule of Two. Without a Rule of Two on orders, more task orders on governmentwide contracts likely will mean fewer set-asides.
With 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. His website is www.samlelaw.com.