The Navy awarded a multiple award, indefinite delivery-indefinite quantity training system contract (TSC) to eight firms of which four were small businesses.  The agency issued a delivery order proposal request as a small business set aside to its TSC awardees where only Delex and another firm provided certifications as small business concerns.  Believing Delex would not submit an offer the Navy withdrew the set aside because it did not expected to receive competitive offers from at least two responsible small businesses.  In response to Delex’s protest, the agency first argued that when an agency places task and delivery orders under multiple award contracts it need not comply with FAR 19.5 including the “Rule of Two” (i.e. requiring agencies to set aside for small businesses any acquisitions exceeding $100,000 if there is a reasonable expectation of receiving fair market prices from at least two responsible small businesses) because the Rule of Two is not part of FAR 19.5.  The GAO disagreed stating though the Rule of Two is not specifically set out in the Small Business Act it has been adopted as the FAR’s implementation of the Act’s requirement through various “notices and comment rulemaking.”  Addressing the agency’s next assertion that FAR 16.5, which governs multiple award ID/IQ contracts, exempts task and delivery orders from FAR 19.5, the GAO disagreed stating the Navy misread the provisions where without an express waiver of the Small Business Act (implemented here by the Rule of Two) there is no basis to conclude that the Rule of Two limited exemption from full and open competition can exempt agencies from complying with FAR Part 19.5 (Delex Systems Inc. GAO, B400403).

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