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Office of Acquisition and Logistics (OAL)

38 U.S.C. 8127 Implementation Frequently Asked Questions Category 2

 

VA Rule of Two

 
 
  1. What is the VA Rule of Two?

  2. What is the process to limit competition to only SDVOSBs/VOSBs when two or more verified & capable SDVOSBs/VOSBs are identified? And, if two or more verified & capable SDVOSBs/VOSBs are not identified, is the process then to utilize the list of priorities identified in FAR 8.002?

  3. If an existing VA vehicle has two or more verified and capable SDVOSBs/VOSBs, any acquisition utilizing that vehicle would be set-aside for SDVOSBs/VOSBs. Any small businesses that are also contract or BPA level awardees will not have any real opportunity for future orders, correct?

  4. What is the process for soliciting when only one verified and capable SDVOSB or VOSB is identified?

  5. With hundreds of entities listed in the VIP database, can just two be selected and then immediately proceed to soliciting these entities?

  6. Does the VA Rule of Two apply to other socioeconomic categories in addition to SDVOSB/VOSB?

  7. If three SDVOSBs or VOSBs identified as verified and capable are on a GSA schedule, but do not indicate interest in submitting a quote, can the acquisition be identified as a woman owned small business or HUBZone if there are adequate sources in those socioeconomic categories?

  8. Does applying the VA Rule of Two mean that an acquisition should be made from verified and capable SDVOSBs/VOSBs over a more cost effective acquisition process, e.g., unrestricted?

  9. Does the VA Rule of Two apply to Letter Contracts?

  10. Can an acquisition be restricted to VA FSS as long as there are two or more verified and capable SDVOSBs/VOSBs available on the vehicle?

  11. Which takes precedence 38 U.S.C. 8127, VA Rule of Two, or 38 U.S.C. 8123, Procurement of Prosthetics?

  12. Does the VA Rule of Two apply only to the extent necessary to meet annual VOSB goals?

  13. If market research identifies only one verified and capable SDVOSB and one verified and capable VOSB, does that satisfy the VA Rule of Two? What is the process for proceeding with that acquisition?

  14. If the acquisition is a VOSB set-aside and quotes/proposals from both VOSBs and SDVOSBs, should preference be given to the SDVOSB(s) for award?

  15. Does the VA Rule of Two apply to A/E contracts?

  16. In implementing the VA Rule of Two, what is the process if two or more VOSBs are identified but are not in the VIP database?

  17. If market research identifies at least two verified and capable SDVOSBs and a number of verified and capable VOSBs available to perform the requirement, can the acquisition be set aside for VOSB to create additional competition?

  18. If the VA Rule of Two was satisfied on the base award of an IDIQ contract(s), does that satisfy the VA Rule of Two for each task/delivery order?

  19. How can the requirement that the SDVOSB or VOSB must perform 50% of the work be verified to ensure these entities will perform this amount of the work after award?

  20. How does the 38 U.S.C. 8127 affect emergency requisitions?


1.  What is the VA Rule of Two?

The VA Rule of Two is the process prescribed in 38 U.S.C. 8127(d) whereby a contracting officer of the VA, “shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.”

2.  What is the process to limit competition to only SDVOSBs/VOSBs when two or more verified & capable SDVOSBs/VOSBs are identified? And, if two or more verified & capable SDVOSBs/VOSBs are not identified, is the process then to utilize the list of priorities identified in FAR 8.002?

The VA Rule of Two process is:

  1. First, contracting officers must review the mandatory sources in FAR 8.002 and 8.003 External link to a government website, then VAAR 808.002.
  2. If there are no mandatory sources, or other unique VA statutory authority for non-competitive acquisitions (as identified in VAAR subpart 806.3), contracting officers shall conduct market research to determine whether there is a reasonable expectation that two or more verified and capable SDVOSBs or VOSBs are likely to provide a fair and reasonable price providing best value to the Government, then the acquisition must be a SDVOSB or VOSB set-aside.
  3. Contracting officers are required to follow the contracting order of priority set forth in the Class Deviation, dated July 25, 2016, Attachment 9, VAAR 819.7004.

3.  If an existing VA vehicle has two or more verified and capable SDVOSBs/VOSBs, any acquisition utilizing that vehicle would be set-aside for SDVOSBs/VOSBs. Any small businesses that are also contract or BPA level awardees will not have any real opportunity for future orders, correct?

Competition will be restricted to SDVOSBs and VOSBs where these entities are determined verified and capable and the contracting officer has a reasonable expectation of receiving offers at fair and reasonable prices that offer best value to the Government.  However, if the contracting officer does not determine the above is true, follow the contracting order of priority set forth in the Class Deviation, dated July 25, 2016, Attachment 9, VAAR 819.7004. This process was already in place prior to the SCOTUS decision.  As a result of the SCOTUS decision, it now applies to all competitive acquisitions including orders against FSS.

4.  What is the process for soliciting when only one verified and capable SDVOSB or VOSB is identified?

It is the Department’s policy that to the maximum extent practicable contracting officers shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans (see VAAR 819.7005 and VAAR 819.7006).  Where only one verified and capable SDVOSB or VOSB is identified, the contracting officer may consider using the unique VA sole authority in 38 U.S.C. 8127(b) and (c) for contracts not exceeding $5,000,000, if appropriately justified and approved pursuant to FAR 6.302-5(c)(2)(ii).  See PPM 2016-05, dated June 25, 2016 and Class Deviation Attachment 9, VAAR 819.7007 and VAAR 819.7008.

To ensure that opportunities are available to the broadest number of verified Veteran-owned small businesses, the VA sole source authority is to be used judiciously and only when in the best interest of the Government.  In accordance with FAR 6.302-5(c)(2)(ii), contracts awarded using this authority shall be supported by a written justification and approval described in FAR 6.303 and 6.304 External link to a government website, as applicable.

Alternatively, contracting officers should give consideration to other small business set-asides or utilizing full and open competition (unrestricted) based on market research, giving SDVOSBs/VOSBs priority and preferences as set forth in VAAR 815.304.

5.  With hundreds of entities listed in the VIP database, can just two be selected and then immediately proceed to soliciting these entities?

The VA Rule of Two only indicates whether the acquisition is a set-aside.  Once the contracting officer decides to set-aside, follow the competition procedures applicable to the FAR part the acquisition is under, i.e., FAR subpart 8.4 External link to a government website, FAR Part 13 External link to a government website, FAR Part 14 External link to a government website, or FAR Part 15 External link to a government website.

6.  Does the VA Rule of Two apply to other socioeconomic categories in addition to SDVOSB/VOSB?

The VA Rule of Two applies only to SDVOSBs and VOSBs.  To the extent that SDVOSBs/VOSBs are not available, follow the guidance in VAAR 819.203-70 (see PPM 2016-05, dated June 25, 2016 and Class Deviation Attachment 9).

7.  If three SDVOSBs or VOSBs identified as verified and capable are on a GSA schedule, but do not indicate interest in submitting a quote, can the acquisition be identified as a woman owned small business or HUBZone if there are adequate sources in those socioeconomic categories?

The scenario in the question above is limiting sources based on a vehicle rather than conducting market research.  Contracting officers are required to first conduct market research to determine whether there is a reasonable expectation that two or more verified and capable SDVOSBs or VOSBs are likely to provide a fair and reasonable price providing best value to the Government.  Per PPM 2016-05, page 6, Market Research, “In performing market research, the VIP database must be used as the initial source to identify verified SDVOSBs and VOSBs that meet the eligibility requirement.”  The results of the market research could result in a number of entities being available on various contracting vehicles and/or open market.  The contracting officer may select one of these vehicles and then if, as stated in the question above, the SDVOSBs or VOSBs are not interested in submitting a quote, SDVOSBs or VOSBs in the open market or on other contracting vehicles should be considered.

8.  Does applying the VA Rule of Two mean that an acquisition should be made from verified and capable SDVOSBs/VOSBs over a more cost effective acquisition process, e.g., unrestricted?

All awards must be made based upon a determination of fair and reasonable prices offering best value to the Government and must be documented as to how the determination was made.  The determination or judgement at the stage the contacting officer must make a decision to set-aside is whether there is a likelihood or “reasonable expectation” by the contracting officer that “two or more small business concerns owned and controlled by Veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.” (38 U.S.C. 8127(d)).” That is a different requirement than the final determination at the time before execution of the contracting officer’s signature and the determination that the prices are fair and reasonable and represent overall best value which is performed in accordance with FAR 15.504 External link to a government website.

9.  Does the VA Rule of Two apply to Letter Contracts?

FAR 16.603 states, “A letter contract is a written preliminary contractual instrument that authorizes the contractor to begin immediately manufacturing supplies or performing services.”  Typically, letter contracts are not competed actions; however, the sole source authorities under 38 U.S.C 8127(b) can be utilized if appropriate.  If the letter contract is competitive, the VA Rule of Two applies.

10.  Can an acquisition be restricted to VA FSS as long as there are two or more verified and capable SDVOSBs/VOSBs available on the vehicle?

Yes, per the Class Deviation, dated July 25, 2016, Attachment 4, VAAR 808.004-70, contracting officers shall consider the prime vendor and VA FSS for medical supplies in Federal Supply classification group 65 and 66 before using other existing contract vehicles.

11.  Which takes precedence 38 U.S.C. 8127, VA Rule of Two, or 38 U.S.C. 8123, Procurement of Prosthetics?

The VA Rule of Two applies to all competitive actions.  If a noncompetitive action for prosthetics pursuant to 38 U.S.C. 8123 and in accordance with VAAR 806.302-5(b)(1) can be justified, then the VA Rule of Two does not apply.

12.  Does the VA Rule of Two apply only to the extent necessary to meet annual VOSB goals?

No.  Per the SCOTUS decision and the Class Deviation, dated July 25, 2016, Attachment 9, VAAR 819.203-70(c) the attainment of goals does not relieve the contracting officer from using SDVOSB/VOSB set-asides.

13.  If market research identifies only one verified and capable SDVOSB and one verified and capable VOSB, does that satisfy the VA Rule of Two? What is the process for proceeding with that acquisition?

The solicitation shall be set-aside for VOSBs since the SDVOSB is also a VOSB.

14.  If the acquisition is a VOSB set-aside and quotes/proposals from both VOSBs and SDVOSBs, should preference be given to the SDVOSB(s) for award?

There is no VAAR prescribed solicitation provision at this time for providing preference to a SDVOSB in a VOSB set-aside.  However, nothing prevents the contracting officer from including evaluation criterion that gives preference to an SDVOSB that submits a quote/proposal.  The evaluation criterion needs to specifically identify how the preference will be evaluated.  However, if the evaluation criteria were not included in the solicitation, there is no preference for the SDVOSB.  The contracting officer shall ensure the market research is done diligently because a SDVOSB set-aside would have been appropriate if two or more verified SDVOSB’s was determined based upon the market research.

15.  Does the VA Rule of Two apply to A/E contracts?

Yes, the VA Rule of Two applies to A/E contracts.  Per PPM 2016-05, page 6, Market Research, “In performing market research, the VIP database must be used as the initial source to identify verified SDVOSBs and VOSBs that meet the eligibility requirement.”  If eligible SDVOSBS or VOSBs are identified, then as required by FAR 36.213-2(b), the contracting officer must include in the pre-solicitation notice the specific small business restriction, i.e., whether SDVOSB or VOSB set-aside.

16.  In implementing the VA Rule of Two, what is the process if two or more VOSBs are identified but are not in the VIP database?

In implementing the VA Rule of Two, only VIP verified entities may be considered as SDVOSBs or VOSBs in VA acquisitions.  If SDVOSBs/VOSBs identified through market research are not VIP verified, these entities are not eligible for set-aside consideration.

17.  If market research identifies at least two verified and capable SDVOSBs and a number of verified and capable VOSBs available to perform the requirement, can the acquisition be set aside for VOSB to create additional competition?

The VA Rule of Two requires that when two or more verified and capable SDVOSBs are identified, the acquisition must be set-aside for SDVOSBs, provided the contracting officer has a reasonable expectation that two or more verified SDVSOBs will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.

18.  If the VA Rule of Two was satisfied on the base award of an IDIQ contract(s), does that satisfy the VA Rule of Two for each task/delivery order?

Yes for single award IDIQs; no for multiple award IDIQs.

19.  How can the requirement that the SDVOSB or VOSB must perform 50% of the work be verified to ensure these entities will perform this amount of the work after award?

The Supreme Court decision did not change the requirement that entities who receive an award on the basis of a set-aside comply with the limitation on subcontracting requirements for set-asides.  The contracting officer or the Contracting Officer’s Representative (COR) should be monitoring the contractor’s performance and/or invoices to ensure the contractor’s compliance.

20.  How does the 38 U.S.C. 8127 affect emergency requisitions?

Emergency acquisitions should follow FAR Part 6 External link to a government website, or FAR part 18 External link to a government website as applicable.