Price Preference

Your approach may be problematic.

If you anticipate receiving offers from two or more small businesses, perhaps a small business set-aside would be better.

If you do an unrestricted acquisition, you will already have a built-in 10% price preference for HUBZone small business concerns amenable to the solicitation provision at FAR 52.219-4.

You wrote, "I'm leaning towards LPTA, FSS and OM, Unrestricted Competition" -- but I don't understand your meaning -- are you contemplating a FAR Part 15 acqusition? FAR Part 13 or 14? FAR Subpart 8.4 (for schedules)? FAR 16.505 (for task orders under multiple award IDIQ contracts)? You should select one, and should not mix them.

How you answer this question will be important for anyone to me more helpful, I think.

Right, if through Market Research I find 2+ Small Businesses I will do a set-aside. I'm looking at situations that haven't uncovered any (maybe one is out there, but wasn't found) or only 1 Small Business. Unrestricted competitions.

I wouldn't consider this evaluation on a Trade Off; it wouldn't be effective. I believe I can do it using FSS (8.4) and certainly OM (13 OR 15). I also wouldn't look to do it when competing IDIQ's like you mention. Right now I'm trying to get the foundation in place before looking at other areas.

Thoughts?

I wouldn't consider this evaluation on a Trade Off; it wouldn't be effective. I believe I can do it using FSS (8.4) and certainly OM (13 OR 15). I also wouldn't look to do it when competing IDIQ's like you mention. Right now I'm trying to get the foundation in place before looking at other areas.

Thoughts?

Which FAR cites allow you to pay a price premium to award a contract to a firm solely because it is a small business?

No FAR Part cites that we can do it. At the same time, I have not been able to find a FAR Part that says we can't. As far as paying premiums, we are subject to paying premiums whenever we do set-asides. Historically, small businesses charge more for the same widget that we can get from a large business. It's simple economy of scales. Small Businesses are the jugernaut of our economy; hence the push to set requirements aside. I'm simply looking for a way to level the playing field between a Small and a Large Business in an Unrestricted Competition.

This is an interesting question. The price preference programs that are described in FAR were established per official public policy. You are asking if an individual or an organization can establish its own policy to "level the playing field between a Small and a Large Business in an Unrestricted Competition."

... Historically, small businesses charge more for the same widget that we can get from a large business. It's simple economy of scales. ..."

It's intuitive that a small biz costs more.

That doesn't make it true.

To Joel, Yes, I guess that's what I'm looking to do.

Also, as far as precedance, FAR Part 25.105 b (1&2) speaks to how Small and Large Domestic firms are compared to a Foreign firm in a foreign acquisition. I'm simply looking to take that same 6% difference applied in FAR 25 and using it in a domestic, unrestricted competition. I understand FAR 25 is for Foreign Acquisitions, I DO. I'm simply taking the relationship (between small & large) Congress has allowed for in foreign buys and applying it to domestic buys. I spoke to a person at the FAR Counsel as to how they came up with the 6% difference, the response I got was 'that is what congress deemed necessary for Small Businesses based on historical data. So, that 6% I first mentioned in this first post is actually FAR Based.

Does anyone see any issues with what I'm thinking of trying?

I suspect that the GAO and the COFC would consider a price evaluation preference that is not authorized by statute to be inconsistent with full and open competition. Of course, full and open competition is not required in simplified acquisitions and when placing orders against existing contracts.

I'm not an attorney. However, I believe that there is case law where such preferences have been thrown out because the Government couldn't prove a disadvantage to warrant the preference or that it was in the best interest of the government (taxpayers) to pay the additional premium price that such preferences might result in.I believe that some of the arguments against such preferences have been based upon "equal protection" under the US Constitution. At a minimum, it appears that the courts will strictly scruntinize such preferences.

I don't think that an individual KO should be instituting public policy such as this.

See, for example:

http://www.aronsonbl...com/gcsg/?p=199

http://www.law.nyu.e..._pro_073785.pdf

http://law.justia.co...84/1431/464470/

http://www.thefreeli...es.-a0144152490

To Joel, Yes, I guess that's what I'm looking to do.

Also, as far as precedance, FAR Part 25.105 b (1&2) speaks to how Small and Large Domestic firms are compared to a Foreign firm in a foreign acquisition. I'm simply looking to take that same 6% difference applied in FAR 25 and using it in a domestic, unrestricted competition. I understand FAR 25 is for Foreign Acquisitions, I DO. I'm simply taking the relationship (between small & large) Congress has allowed for in foreign buys and applying it to domestic buys. I spoke to a person at the FAR Counsel as to how they came up with the 6% difference, the response I got was 'that is what congress deemed necessary for Small Businesses based on historical data. So, that 6% I first mentioned in this first post is actually FAR Based.

Does anyone see any issues with what I'm thinking of trying?

gmdubya, you certainly can't justify a personal policy, instituting a price preference, on a phone call with "a person" at the FAR Council office, using the basis that CONGRESS established for another program. That 6% price difference is intended to protect domestic industry from foreign competition for various reasons. How does that justify protecting small business enterprises from large business price advantages - if there are any?

I don't know whether there is case law, but I think Joel has pointed out some problems with a predetermined price preference. Who decided that 6 percent was in the best interests of the government in this case? What analysis was performed that supports a 6 percent priference? Can such a preference be reasonable without consideration of other differences among offerors? Etc.

This is an interesting question. Prior to the FAR expressly permitting small business set-asides under FSS contracts, GSA advised that agencies could use socioeconomic status as an evaluation factor for award. This may still be common practice. This implied that 1) an agency could attribute value to the socioeconomic status of an offeror and 2) an agency would potentially be willing to pay more to obtain the benefit of awarding to an offeror with a desirable socioeconomic status.

In gmdubya's scenario, the agency would be stating how much they value socioeconomic status up front. If evaluating socioeconomic status was ok in awarding FSS orders, I don't see how GSA could say that using a price evaluation preference would be wrong.

In gmdubya's scenario, the agency would be stating how much they value socioeconomic status up front. If evaluating socioeconomic status was ok in awarding FSS orders, I don't see how GSA could say that using a price evaluation preference would be wrong.

How do you square the application of a price preference that is not based on statute or regulation with FAR 3.101?

"Government business shall be conducted in a manner above reproach and, except as authorized by statute or regulation, with complete impartiality and with preferential treatment for none."

According to GSA, agencies were authorized to use "socioeconomic status" as an evaluation criterion in awarding FSS orders. Presumably, they thought this was authorized by statute and regulation because it fell within the wide latitude that agency officials had in choosing appropriate evaluation factors. Use of such a factor provides a preference that is not expressly authorized by statute or regulation. Do you think that conflicts with FAR 3.101?

How do you square the application of a price preference that is not based on statute or regulation with FAR 3.101?

"Government business shall be conducted in a manner above reproach and, except as authorized by statute or regulation, with complete impartiality and with preferential treatment for none."

Is it possible that 15 USC 644(a) provides a statutory basis for this preference?

"To effectuate the purposes of this chapter, small-business concerns within the meaning of this chapter shall receive any award or contract or any part thereof, and be awarded any contract for the sale of Government property, as to which it is determined by the Administration and the contracting procurement or disposal agency . . . to be in the interest of assuring that a fair proportion of the total purchases and contracts for property and services for the Government in each industry category are placed with small-business concerns."

This is an interesting question. Prior to the FAR expressly permitting small business set-asides under FSS contracts, GSA advised that agencies could use socioeconomic status as an evaluation factor for award.

Don, when did GSA so advise agencies?

According to GSA, agencies were authorized to use "socioeconomic status" as an evaluation criterion in awarding FSS orders. Presumably, they thought this was authorized by statute and regulation because it fell within the wide latitude that agency officials had in choosing appropriate evaluation factors. Use of such a factor provides a preference that is not expressly authorized by statute or regulation. Do you think that conflicts with FAR 3.101?

Don, are agencies still specifically authorized to use "socioeconomic status" as an evaluation criterion in awarding FSS orders?.

The Adarand Constr., Inc. v. Pena Decision, 515 U.S. 200 (1995), has caused a lot of follow on scrutiny over the basis for price preferences as well as other special preference programs. One of the links above, http://www.thefreelibrary.com/Socio-economic+policies.-a0144152490 has some discussion, including a mention of an article by Vern Edwards in "The Nash and Cibinic Report" concerning the propriety of cascading set-asides.

Joel,

GSA first advised agencies that this was permissible in 2005. See here. The last extension to this policy is here. It seems like the policy is still effective.

Joel,

GSA first advised agencies that this was permissible in 2005. See here. The last extension to this policy is here. It seems like the policy is still effective.

Thanks, Don. Again, I'm not an attorney or small business specialist. However, it would seem to be reading a lot into said policy that it authorizes price preferences. I can see it as authorizing the use of set-asides to assist in meeting government and agency goals for awards to the various small business groups.. It appears from the little reading that I've done that the courts are indicating that there must be some documented basis of disadvantage to develop and use a price preference to justify paying additional sums.

And gmdubya has stated that he/she came up with "6%" based on a conversation with "a person at the FAR Counsel".

joel,

I don't think the letter does anything more than authorize the use of socioeconomic status as an evaluation factor when placing orders under Federal Supply Schedules. However, given that this practice is permissible, I don't see how GSA could say that use of a price preference is impermissible. The only difference is that the agency would be specifically stating how much small business status would be worth in the solicitation instead of stating something vague like "socioeconomic status will be considered."

joel,

I don't think the letter does anything more than authorize the use of socioeconomic status as an evaluation factor when placing orders under Federal Supply Schedules. However, given that this practice is permissible, I don't see how GSA could say that use of a price preference is impermissible. The only difference is that the agency would be specifically stating how much small business status would be worth in the solicitation instead of stating something vague like "socioeconomic status will be considered."

GSA’s opinions on procurement matters do not necessarily coincide with GAO’s or the Courts'. As an example, see The Argos Group, LLC, B-406040, Jan 24, 2012.

Regarding the impact of FAR 3.101 on the application of pricing preferences, see this Congressional Research Service Paper on the use of geographic pricing preferences: http://assets.opencrs.com/rpts/R41115_20101001.pdf.

I believe the principle set out on page 8 applies to socioeconomic price preferences as well: “Agency attempts to favor local vendors without specific statutory authority would violate both procurement integrity regulations and the Competition in Contracting Act (CICA) of 1984.”

GSA’s opinions on procurement matters do not necessarily coincide with GAO’s or the Courts'. As an example, see The Argos Group, LLC, B-406040, Jan 24, 2012.

Regarding the impact of FAR 3.101 on the application of pricing preferences, see this Congressional Research Service Paper on the use of geographic pricing preferences: http://assets.opencrs.com/rpts/R41115_20101001.pdf.

I believe the principle set out on page 8 applies to socioeconomic price preferences as well: “Agency attempts to favor local vendors without specific statutory authority would violate both procurement integrity regulations and the Competition in Contracting Act (CICA) of 1984.”

I agree with everything you wrote. However, wouldn't 15 USC 644(a) provide adequate statutory authority (as cited by Navy_Contracting_4 in post #16)?

Even if you don't think it does, the point I'm trying to make is that I don't think it would be consistent for GSA to state that consideration of socioeconomic status in awarding orders is permissible, but the use of the price preference is impermissible. I'm not arguing that either technique is legal (i.e., would hold up at GAO or the Courts).

I am surprised that reference to FAR 1.102(d) has not tiptoed into this discussion.

I don't think it would be in the "best interests of the Government" to let individual COs or contracting offices establish formulaic price preferences when placing orders against GSA FSS contracts. That's not the same as making an analytical best value decision based on proposal evaluations and comparisons. If something like that is to be done it should be done on the basis of thorough economic analysis and coordinated governmentwide policymaking.

I agree with everything you wrote. However, wouldn't 15 USC 644(a) provide adequate statutory authority (as cited by Navy_Contracting_4 in post #16)?

!5 USC 644 contains about 20 paragraphs. Subparagraph (a)(3) refers to the requirement that a "fair proportion of the total purchases and contracts for property and services for the Government in each industry category are placed with small-business concerns."

The subsequent paragraphs and their subparagraphs address means of assuring that the fair proportion is achieved (e.g. priority for labor surplus concerns, procurement strategies involving contract bundling, goals for awards to small businesses and their socioeconomic subsets, and the use of set asides in the placement of orders under multiple award contracts). Since I cannot find any mention of a price preference, I conclude that it is not authorized.

I don't think it would be in the "best interests of the Government" to let individual COs or contracting offices establish formulaic price preferences when placing orders against GSA FSS contracts. That's not the same as making an analytical best value decision based on proposal evaluations and comparisons.

If the only evaluation factors were price and socioeconomic status (currently permissible under FSS ordering procedures), it wouldn't be much different. The only difference is that you would be disclosing how much more you'd be willing to pay for a desired socioeconomic status in the solicitation.

FAR 8.405-5( c) says:

"Ordering activities may consider socio-economic status when identifying contractor(s) for consideration or competition for award of an order or BPA."

FAR 8.405-5(d) then says:

"For orders exceeding the micro-purchase threshold ordering activities should give preference to the items of small business concerns when two or more items at the same delivered price will satisfy the requirement."

When I read those two adjacent paragraphs, I do not get the impression that a CO may declare an intention to pay a 6 premium in order to award to a small bisiness. Do you?

In my opinion, you have been attributing way too much weight to the first sentence and ignoring the second. It seems to me that the second sentence indicates that a formulaic 6 percent price evaluation preference is not consistent with established policy.

As we discussed by phone, I think that FAR 8.405-5( d ) only makes sense if price were the only factor. If the evaluation factors were price and past performance, for example, it would be permissible to give preference to a large business with superior past performance even if both the large and a small business proposed the same delivered price.

As you suggested, I will contact GSA to get an interpretation of their acquisition letter. I will post what I find here.

Good morning, Yesterday, i spoke at length with my contact at GSA. I wanted to get their take on a price preference. Ultimately he said, GSA had nothing supporting or discouraging what I was thinking. Because of the conversation I relaized GSA might not be a viable option. If I'm procuring on GSA chances are I'm going to be able to set-aside, 80% of the contractors on GSA are Small. On a set-aside, a Price Preference isn't going to be needed. So now i'm back to an Unrestricted solicitation in the Open Market.

Also because of the call, Initially I thought this would only benefit on an LPTA evaluation; a Trade Off also seems plausible. As everyone knows, within a TO you list various factors that are more important than price. What happens if I simply include Socio status as more important than price?? Within reason.

The reason I am belaboring this so much is that Small Businesses are a powerful tool to our economy. Collective SB's employ more people than collectivel LB's. The more SB's we have, the more people are employed, the more tax revenue into theTreasury! At that, I'll be the first to admit this sounds great on paper, but I haven't seen a silver bullet saying Yes or No to the Price Preference I'm thinking of.

That's great Mom and apple pie. But is a 6 percent price premium a good idea when you don't have enough small businesses to warrant a set-aside and to ensure competition among small businesses?

Yes! Remember, it's UP TO 6%. It won't necessarily be the full 6%. I can sleep at night allowing for this percentage. My issue still remains if it's formally frowned upon.

Yes! Remember, it's UP TO 6%. It won't necessarily be the full 6%. I can sleep at night allowing for this percentage. My issue still remains if it's formally frowned upon.

Any frowns that count would be on grimaces seen at the GAO and / or COFC.

Issue a solicitation; see if you get a timely protest; await the decision.

There are several seasoned people here who do not like your idea, me included, and we have looked everywhere we can think of in an attempt to find something that says you cannot do it. We have found nothing.

Get on with it.

...and it's 6 percent because you spoke with somebody at the "FAR Counsel" who said that there is a 6% preference for domestic producers vs. non-domestic producers, which is something entirely different that a perceived price advantage for large business vs. small business. That is not any justification for what you are proposing to do. The 6% is to protect domestic producers. You don't have any data to justify what you want to do as a PERSONAL policy.

Geez, its no wonder our Government is in such deep trouble. Spendthrifts abound...

...and it's 6 percent because you spoke with somebody at the "FAR Counsel" who said that there is a 6% preference for domestic producers vs. non-domestic producers, which is something entirely different that a perceived price advantage for large business vs. small business. That is not any justification for what you are proposing to do. The 6% is to protect domestic producers. You don't have any data to justify what you want to do as a PERSONAL policy.

Geez, its no wonder our Government is in such deep trouble. Spendthrifts abound...

Joel,

I think you may be judging too hastily. The 6% is not because he spoke with somebody at the FAR Council who said that there is a 6% preference for domestic producers vs. non-domestic producers, it's because FAR 25.105( (1) and (2) provide a 6% preference for a domestic small business vs. a domestic large business. Read Post #8 again, and FAR 25.105. You will likely still disagree with the approach, but at least do it acknowledging the actual rationale presented for using the 6% factor.

Joel,

I think you may be judging too hastily. The 6% is not because he spoke with somebody at the FAR Council who said that there is a 6% preference for domestic producers vs. non-domestic producers, it's because FAR 25.105( (1) and (2) provide a 6% preference for a domestic small business vs. a domestic large business. Read Post #8 again, and FAR 25.105. You will likely still disagree with the approach, but at least do it acknowledging the actual rationale presented for using the 6% factor.

Ok, sorry - my bad. But its still not a direct comparison between domestic large and small business firms. You compare the lowest domestic offer with the lowest offer, if that offer doesnt qualify as a domestic offer.

Yes - domestic small businesses get a better preference vs. a non-qualifying offer than a large business would - but only if they are the lowest domestic offer that isnt the lowest overall offer. The domestic small business doesn't displace a large business offer in the price comparison with the non-qualifying offer. Am I correct in my reading of 25.105? Thus, under 25.105, a domestic small business doesnt bump a domestic large business offer that was lower, right?

Navy_Contracting_4,

FAR 25 gives a higher preference to doemstic small vs. non-domestic than it does to domestic large vs. non-domestic (increasing the non-domestic price by 12% vs. 6%). It does not establish a 6% preference between domestic small and domestic large businesses.

gmdubya,

If you intend to award using the LPTA method, you have concluded that best value is expected to result from selection of the technically acceptable proposal with the lowest evaluated price--how would a higher priced small business then become the best value?

If you intend to award using the trade-off method, the perceived benefits of the higher priced proposal have to merit the additional cost.

As has been stated numerous times before, you have no basis for determining that your 6% premium is warranted (or that an award to a small business would result in greater tax revenue in an amount greater than that premium than would an award to a large business ).

If agencies have to furlough government employees because of the deficit/budget crisis, I have a nominee for the first round of layoffs, and for the second and third.

Navy_Contracting_4,

FAR 25 gives a higher preference to doemstic small vs. non-domestic than it does to domestic large vs. non-domestic (increasing the non-domestic price by 12% vs. 6%). It does not establish a 6% preference between domestic small and domestic large businesses.

wifcon1,

A distinction I overlooked in my haste to respond to Mr. Hoffman. How ironic that I responded too hastily while criticizing someone else for responding too hastily. Mea culpa. Thank you for the correction.

If you intend to award using the LPTA method, you have concluded that best value is expected to result from selection of the technically acceptable proposal with the lowest evaluated price--how would a higher priced small business then become the best value?

Because the "evaluated price" of the large business would be the proposed price + 6%.

I do not know if I count as seasoned but I do have to say that I am thoroughly confused by the scenario that has been put forth and in the end firmly question the approach as it seems that to satisfy mom and apple pie that the answer after all the churn on this thread should be - DO A SMALL BUSINESS SET ASIDE(ref: FAR 19.502-2)!

Why?

gmdubya post #3 where it is stated "I'm looking at situations that haven't uncovered any (maybe one is out there, but wasn't found) or only 1 Small Business." Then gmdubya post #29 where it is stated - "Because of the conversation I relaized GSA might not be a viable option. If I'm procuring on GSA chances are I'm going to be able to set-aside, 80% of the contractors on GSA are Small." For this reason I am lead to the conclusion that gmdubya's reasoning to pose the question was based on a faulty premise that went out the door with post #29.

As to the idea of preference if in fact it was found that through specific market research that could determine a reasonable expectation that offers will not be obtained from at least two responsible small business concerns and award would not be made at fair market prices the idea of a preference is still not reachable based on “the best interests of the Government”.

Don, going back to your post #22, I don't think 15 U.S.C. 644(a) gives individual contracting officers or even individual contracting activities authority to use such a price evaluation preference. Note that it says "small-business concerns within the meaning of this chapter shall receive any award or contract or any part thereof . . . as to which it is determined by the Administration and the contracting procurement or disposal agency . . . to be in the interest of assuring that a fair proportion of the total purchases and contracts for property and services for the Government in each industry category are placed with small-business concerns." To me, this indicates that whatever process is used to award contracts to small businesses must be established by the SBA and procuring agency, not individual contracting officers or offices.

As to what playing field gmdubya is trying to level, congress has already determined how the procurement playing field is to be leveled by mandating full and open competition, unless another process is authorized by law. Further, the procedures to be followed in awarding contracts using full and open competition are those set forth in the FAR. In this regard, I do not see anything in the FAR that permits proposals to be evaluated differently for different classes of offerors unless such differing treatment is specifically authorized by law or a properly promulgated regulation such as the requirement to have a small business subcontracting plan.