The Rule of Two Strikes Again - Delex Validated?

In a largely unnoticed recent bid protest decision, the U.S. Court of Federal Claims held that the United States Coast Guard violated federal procurement law by issuing two modifications that exceeded the scope of the underlying Systems Engineering and Technical Services (SETS) II task order. In Global Computer Enterprises, Inc. v. United States, the court determined that the out-of-scope modifications were essentially unauthorized sole-source procurements that wrongfully extended the ordering period of the underlying Information Technology Omnibus Procurement (ITOP) II contract. The case provides an in-depth analysis (it is 154 pages long) of out-of-scope contracting in the context of contract modifications, which is recommended reading for those contract managers participating in large IDIQ programs.

What makes this decision especially noteworthy, however, is not necessarily the underlying ruling. Rather, buried deep in this extraordinarily long opinion, the court concluded that the Coast Guard violated FAR §19.502-2 (the "Rule of Two") and, in the process, seemingly adopted the reasoning set forth in GAO's controversial Delex Systems decision.

As part of its protest, Global Computer Enterprises, Inc. (GCE) alleged that the Coast Guard violated FAR §19.502-2 by failing to conduct a Rule of Two analysis before issuing the modifications to the SETS II task order. GCE argued that because the modifications were valued at well over the Rule of Two threshold of $100,000, they constituted acquisitions under the FAR and were thus subject to the requirement that the Coast Guard evaluate whether two small businesses could perform the work at fair market price before making an award to a business that is other than small. The court agreed with the protestor, stating that because the modifications exceeded the scope of the underlying task order, they were in fact separate acquisitions (apart from the contract itself) that triggered the Rule of Two. While not relying on it exclusively, the court made a point to cite and quote, at length, the GAO's decision in Delex Systems as support for its position. In Delex Systems, GAO rocked the federal contracting industry by declaring that the Rule of Two applies to task and delivery orders placed under multiple-award contracts. Hence, it would appear that the Court of Federal Claims agrees with GAO's controversial Delex Systems decision. (It should be noted that U.S. Court of Federal Claims decisions are not binding on other judges who sit on the court. Therefore, it would be entirely permissible for another judge to determine that Delex Systems is not valid.)

While it is probably premature to draw sweeping conclusions about the long-term importance of Delex Systems based on one U.S. Court of Federal Claims decision, it is nonetheless noteworthy that at least one judge from that court has recognized the GAO's decision and is willing to afford it precedential value. Centre Consulting will continue to monitor decisions at both the U.S. Court of Federal Claims and GAO for further indications as to the long-term influence of Delex Systems.
Brian Caney, Esq.

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