New acquisition strategy alarms industry

A new way of holding competitions for government contracts is sweeping through federal agencies - and big companies aren't entirely happy about it.

Cascading set-asides is an acquisition technique that involves soliciting bids from all kinds of companies and then considering the submissions in order of legal preference, which means starting with small, disadvantaged businesses and moving to big companies. As soon as the agency has enough proposals for a competition among small businesses or other preferred firms, it makes an award and never opens the remaining envelopes.

Two federal executives created the technique in 1999 when they were searching for a way to satisfy both an agency's need to quickly make contract awards and the Small Business Administration's goal of increasing small business participation in the federal marketplace.

Ed Girovasi, a procurement director at the Housing and Urban Development Department, had designed a full and open competition for a series of property management contracts, but SBA complained that it excluded small businesses.

Girovasi talked over his options with Jose Gutierrez, who at the time was an associate administrator at SBA. Girovasi was concerned that if he held a set-aside competition for small business, HUD wouldn't receive any satisfactory bids and then would have to start the process all over again, which would be costly and time-consuming.

"We were at opposite ends of the table: Ed's job was to protect HUD; my job was to make sure small business got a piece of the rock. We were looking at where we would meet in the middle, so both sides could walk away and win," said Gutierrez, who is now acting director of the Office of Small and Disadvantaged Business Utilization at the Transportation Department.

Gutierrez also came up with the romantic term for the procedure. Both men say that at the time, their creation felt revolutionary.

In that first HUD cascade, 55 companies submitted 430 proposals, and $220 million, about a quarter of the total contract worth, went to small businesses.

Girovasi said he expected large companies to protest at the time, but none did. Indeed, the Government Accountability Office, which responds to protests over contracting decisions, supported cascading in a decision involving a small business.

Still, industry groups say it's not fair that bids from bigger companies might never get opened.

"You spend all this bid and proposal money and you thought you had a chance of winning, and, oops, there was a HUBZone," said Cathy Garman, senior vice president of public policy at the Contract Services Association, an industry group. (SBA's HUBZone program gives preferences to small businesses in historically disadvantaged regions.) She said that if she were a medium or large business, she wouldn't bid on a solicitation advertised as cascading.

Girovasi responds to such resistance by pointing out that cascading gives big companies more of a chance to win than if they weren't allowed to submit any bid at all, and that the law requires agencies to give preferences to small businesses.

"There never is a guarantee that you're going to be the successful winner. This cascade model opens up … closed opportunities," added Gutierrez.

Whether industry likes it or not, momentum for cascades continues to build: A search on FedBizOpps, the Web site where agencies post solicitations, reveals dozens of cascading set-aside solicitations, including at the Agriculture Department, Veterans Affairs and the Air Force.

Gutierrez said he recently drafted a proposal for the use of cascades for Transportation. While no governmentwide guidelines exist on their use, in 2003 the Commerce Department released internal guidelines on using the cascade approach.

Gutierrez and Girovasi have become a two-person traveling sales team for cascades. They recently spoke to a packed room of acquisition officials at the Federal Acquisition Conference & Exposition in Washington as well as at a conference in San Diego. The Environmental Protection Agency asked Girovasi to speak about cascades to its acquisition team last summer, and both men are attended events sponsored by the General Services Administration and talking up the approach about other professionals.

Girovasi also said he has a plan to make officials in charge of governmentwide acquisition aware of the technique. He declined to elaborate.

An OMB official said that the agency does not have a policy on the use of cascading set-asides. David Safavian, administrator of OMB's Office on Federal Procurement Policy, encouraged creativity in contracting earlier this month and reminded contracting officers that if the Federal Acquisition Regulation doesn't prohibit an action, then it is allowed.