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Government Contractor’s Blog

Supreme Court takes on “Rule of Two”: what the decision means for set-asides on Federal Supply Schedules

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You may have heard people talking about a recent U.S. Supreme Court decision (Kingdomware Technologies Inc. v United States of America), saying it’s given a “boost” to veteran-owned businesses. And that the “Rule of Two” is now mandatory at the U.S. Department of Veterans Affairs (VA). But does the Court action affect Federal Supply Schedule (FSS) task and delivery orders? And does it affect every agency?

The very short answer is “no, not at this time.” That’s because “Rule of Two” is a term used for both the VA and U.S. Small Business Administration (SBA) statutes and regulations – but they’re different rules with the same name. At this time, the Supreme Court decision applies only to VA contracting rules and is specific to Veterans Affairs and to VA awarded contracts. Unless there is a regulatory change, agencies other than the VA should recognize that there has been no policy change in regard to the discretionary nature of FSS set-asides.

So, you can jump into the fourth quarter buying season with confidence, knowing there has been no change in procedures for using the Federal Supply Schedules.

As you might expect, we’ve received many questions since this decision was announced. Here are a few of the most frequently asked ones, along with brief answers:

Are set-asides allowed against FSS contracts?

Yes. FAR 8.405-5 allows for set-aside acquisitions on FSS contracts. In accordance with FAR 8.405-5(a), ordering activity contracting officers may, at their discretion, set aside orders or blanket purchase agreements for any of the small business concerns identified in FAR 19.000(a)(3).

Are ordering activity contracting officers required to set aside task or delivery orders against FSS contracts if the “Rule of Two” is met?

No, it is not required unless agency specific statutes or regulations require set-asides. FAR 8.405-5(1) states “preference programs of part 19 are not mandatory in this subpart,” and ordering activity contracting officers are provided the discretionary authority to set aside FSS orders.

Could there be future policy changes in light of the Kingdomware decision?

Yes. The Office of Federal Procurement Policy (OFPP) will coordinate meetings between GSA and SBA to discuss this decision. However, unless there is a regulatory change, agencies other than VA should continue to follow policies recognizing the discretionary nature of set-asides under the FSS.

Who can I talk to if I have questions regarding acquisitions against FSS contracts?

Any questions regarding acquisitions against FSS contracts may be directed to Steve Hutchinson, MAS Policy Division, Federal Acquisition Service Office of Acquisition Management, by phone at (202) 573-6211 or by email

1. FAR 8.405 was updated through FAR Case 2011-024 published in the Federal Register at 76 FR 68032 which was based on updates to the statute, specifically 15 U.S.C. 644(r), Multiple Award Contracts.

Can Business Partners Put Your GSA Schedule At Risk?

It goes without saying that the GSA Schedule contract is between the listed business and the government. However, in reality, there are other parties who, while not held to the terms of the contract, still have a significant impact on the ability for a business to execute their contract. Suppliers or manufactures, for example, can change their rates; but it is incumbent upon each contract holder to adjust their commercial pricelist and avoid overcharging the government.

Even seemingly small changes by business partners can have serious repercussions.  This week an EZGSA client presented this problem: their major supplier, Motorola, was removing the MRSP from vendor pricing sheets. The cost to the vendor didn’t change, but there would no longer be a listed price. Yet because our client’s GSA prices were based off of a discount to the MSRP, the old GSA prices were now rendered null and void.

To continue selling to the government without addressing this would violate at least the Price Reductions Clause, and probably the False Claims Act, both of which subject the offending company to numerous penalties. And those penalties can compound the longer they are left unaddressed. Thankfully, we were able to identify the issue promptly and work with the Contracting Officer to create a new basis of award for the client.

Be aware of any changes made by the companies with which you do business. If you see something that seems out of the ordinary, ask for help. Price changes may be the result of manufacturing changes, which may indicate that the Country of Origin has changed. A new price list may require a new letter of supply. Any number of changes to how businesses choose to work with you may result in your needing to change the GSA Schedule terms and rates.

For more information or assistance, contact EZGSA at or 301-913-5000.

Dates to Mark on your GSA Schedule Contract Calendar

One-year point

If you have recently been awarded your GSA contract, congratulations. You are now on the clock. You have two years to generate $25,000 in GSA contract sales, a hard deadline which arrives more quickly than you’d expect (!).  Begin executing your marketing plan immediately, and at the one-year point, we suggest you  re-assess: Has your marketing plan generated the expected outcomes? Do you have enough potential business in the pipeline to meet your sales goal? It can take 12 months before you begin to see if a business development plan takes hold.   Mark the one-year point, and reassess your current trajectory. Your contracting officer will reach out to you several months before your two-year anniversary to indicate the government’s intention to either continue their contract or to cancel it due to lack of sales. Be prepared.

EPA Date

After having a GSA Schedule contract for 12 months, contractors may be eligible for an Economic Price Adjustment. For many Schedules, you can submit three price increases per 12 month period, so long as the combined  increases do not exceed the 12-month percentage cap.

Know the date you can submit your next EPA, and be forewarned. You are not able to recover missing a year’s EPA by doubling up on a request in subsequent years.  

Contract End

Note your contract end date. Approximately 210 days (seven months) before that date, you’ll receive information regarding an option to extend your contract. Prepare, and expect  this letter, as you have 45 days to respond.

Sunset Date

After your fourth and final renewal period goes into effect, you should begin to prepare a new GSA Schedule contract submission. Your current contract is still valid for the next five years, but every day past the renewal date shortens the length of time that a contract can be written against your GSA Schedule. If your company often wins one year BPAs with four year options, there’s bad news: when your  BPA doesn’t span five FULL years, you won’t be eligible to compete for 1+4 contracts. It is imperative, then, to be preparing your new GSA Contract as soon as possible after your final option to extend has been exercised.

For more information, contact EZGSA at 301-913-5000 or

Dealing with Financials—what are Contracting Officers looking for, exactly?

I’ve heard said that more than 80% of companies who apply for a GSA Schedule contract on their own get rejected on their first attempt.. When applying for their own GSA contract, many applicants do not have a full grasp of their Contracting Officer’s expectations. While not arbitrary, Contracting Officers’ expectations can be individualized and specific. If the applicant doesn’t know what a Contracting Officer wants, it can be very difficult to win them over.  Following the letter of the solicitation of not enough. You have to make a clear case that you are qualified and equipped to deliver whatever will be asked of you.

One place where these expectations may be less than clear is with company financials. There some are clear requirements, like having $250,000 annual revenue or 2 years of financial history*. If you don’t meet these standards, it might not yet be time for you to go after a GSA schedule contract. But even if you do, the point isn’t to go down a checklist that says you’ve met the minimum standards. Depending on your particular solicitation, you will be asked to provide financials from the past one to three years. The minimum guideline was put in place because without a history, the Contracting Officer (CO) may be unable to determine the state of your business. It is essential to give GSA all necessary information so that your CO will feel confident in your company.

Confidence comes with a clear overall picture of the applicant’s financial stability. This implies that the company could well be around for the next 5-20 years to fulfill an awarded GSA Schedule contract. It also shows the CO that the company has the ability to handle the exactitude of government accounting practices, including demonstration of a healthy profit, compared to your income. GSA doesn’t need a fully expanded financial statement, but the Contracting Officer would like to see some specifics of your Profit and Loss (P&L) statement, such as the various lines of income and major expense categories like employee costs, professional and legal fees, rent, etc.

Financials that would concern a CO show a negative P&L and unclear balance statements. Overloaded expense in some minor categories, such as phone, cars, or travel, may also raise a red flag.

If you are currently putting together a contract proposal, be sure that the picture you are creating is complete and accurate; not just in a way that says you met the minimum requirements, but in a way that says your business is responsible and ready to expand into the federal market.

For more information, contact Ivan Wohner at or 301-913-5000.

*There are examples of these requirements being waived by GSA in very specific instances.

Where did my pricelist go: the broad fallout of GSA’s TAA compliance issues?

The chances are that you’ve heard about the sweeping audit that GSA is conducting of products on schedules 56, 66, 73, and 84. If you have products on GSAAdvantage!, Whether or not your posting violates the TAA Trade Agreement Act, you must respond to the governments inquiries about country of origin by 5/13/16 or else your pricelist will be removed. And once it’s removed, it can be extremely frustrating to get it reposted.

By Friday, you are required to certify the origin of every product that you sell to the government. For any item found to be manufactured in the United States or a TAA Designated Country, you must provide a copy of the Certificate of Origin OR certification from manufacturer on official letterhead verifying the products they supply are compliant with Trade Agreements Act. If you discover that you have TAA non-compliant items on your price list, you will have to submit a modification to have them deleted, and upload a new catalog by 5/16/16.

You might be tempted to ignore GSA’s warning, saying, “All of my products are made in America. I should know, I’m the manufacturer.” Do not do this. Anyone who has not certified that everything they offer is TAA compliant will have their price list removed from GSAAdvantage! Any future instance of a product misrepresenting its country of origin, with an unverified origin, or from a country that is not TAA compliant will result in your pricelist being delisted and your GSA schedule contract being subject to cancellation.

That’s a heavy punishment, but for the federal government, it is a serious issue. The federal government has bound itself with a variety of laws beginning with the Buy American Act (BAA) of 1933. Basically, it says that the federal government may not purchase goods from non-US companies if there is a US company that can provide it…unless. That unless allowed for the 1983 Trade Agreement Act (TAA), which specifies the exceptions to the BAA. The trade Agreement Act states that:

If you are selling a product that was manufactured* outside of the US, it must be from a TAA “designated country”. TAA “Designated Countries” include:

  • Those with a free trade agreement with the United States such as Canada, Mexico, Australia, and Singapore
  • Countries that participate in the World Trade Organization Government Procurement Agreement (WTO GPA), including Japan and many countries in Europe
  • Least developed countries such as Afghanistan, Laos, and Ethiopia
  • Caribbean Basin countries such as Aruba, Costa Rica, and Haiti

China, Russia, Brazil, and India are not on that list.

If you have a product that was made in China, for example, you are violating the TAA. Now historically, Violating the TAA would have been a case of misrepresentation, triggering the False Claims Act. The FCA penalizes the company that misrepresents their product (saying it is TAA compliant when it is not, which causes the federal government to violate their own laws and trade agreements). The penalty is treble (3x) damages plus up to $11,000 per incident. In 2005, Office Depot settled for a 4.75 million dollar fine and OfficeMax settled for a $9.72 Million fine. These penalties were all for selling products to the federal government that were purported to have been TAA compliant, but were not.

And this is the question: How did non-compliant items get onto a GSA schedule in the first place? According to the settlement agreements, no fault was ascribed. That is, the government didn’t insist that the business “knew” they were in the wrong, the company didn’t declare that they were innocent. And that’s because, as our supply chain becomes increasingly globalized, the question of “country of origin” becomes more difficult to ascertain.

There are many ways for a non-compliant item to appear on a GSA schedule: perhaps during the initial award process, a catalog with thousands of products may have accidentally slipped in something that was made in china. Or a supplier or manufacturer may have given incorrect information to a distributer. Maybe an item that was once manufactured in a TAA compliant country may have had its country of origin changed without the distributer knowing. Or there may be some mix-up in how a business interprets the law. Whatever the case is, it’s still highly illegal. GSA makes this statement:

“Regardless if your firm is a manufacturer, distributor, reseller, etc., the responsibility for compliance with TAA and [Country Of Origin] representations rests solely with the GSA Schedule contract holder. GSA Schedule contract holders have a fiduciary duty to determine compliance with the TAA and to ensure that all COO representations in GSA Advantage are accurate regardless of any information provided by your suppliers or manufacturers if you are a distributor or reseller.”

So rather than waiting for a whistle blower or a complaint CAV to reveal these issues, GSA is being proactive. There should be no TAA-violating items for sale on GSAAdvantage in the first place, and they are taking steps to make sure that is the case.

If there is a TAA non-compliant item on your price list, the entire list will be taken down, and your GSA schedule contract may be cancelled.

If you need help or more information, reach out. or 301-913-5000 x 5015.