# Presentation: 062462

##  Cascading 	  Set-Asides

- Achieving small business goals
-     via multi-tiered competition

## What is cascading?

- Multi-tiered, competitive, small business set-aside source selection process
- All types of businesses may submit offers
- Offers considered in hierarchical tiers (e.g., HUBZone)
- Offers may cascade to lower tier if inadequate competition at their tier
- Award made at highest tier at which adequate competition exists

## Origin of Cascading

- HUD’s Real Estate Owned Single Family Management & Marketing contracts:
- New effort for HUD & industry
- Qualified sources unknown
- Small business property management firms protested to SBA:
- No small business set-aside
- Alleged bundling
- Need for small business participation

## HUD’s Real Estate Owned Mission

- Management and disposition (normally via sale) of a national inventory of single family properties owned or held by HUD after owners default on FHA-insured loans.

## A Brief History of REO

- Presence in 81 HUD Field Offices
- Supported by:
- 200+ field-based property management contractors:
- Most - small business
- Wide range of service area sizes
- Other contract services (advertising, marketing, sales closings, etc.)

## The Conundrum

- Provide contract support for a wide range of services in large service areas
- Ensure uniformity in service delivery
- Provide opportunity to small business -
- New, complex requirement
- Unknown universe of qualified small businesses
- Minimize possibility of having to reprocure due to inadequate set-aside sources

**Notes:**
HUD correctly reasoned that the range of services in the M&M contracts constituted a new requirement despite the fact that they included many services previously provided by small business concerns under the former property management contracts.

## HUD-SBA Solution

- Establish reasonable number of geographic service areas
- Designate the service areas most appropriate for set-aside
- Create new cascading set-aside process:
- Attract all types of businesses
- Give preference to small & small disadvantaged businesses
- Encourage small business subcontracting by all awardees

## M&M I Cascade Method

- Competitive award made:
- 	1st  - to eligible 8(a) business concerns
- 	2nd - to eligible small business concerns 	   ***if ***insufficient 8(a) competition
- 	3rd - on an unrestricted basis considering 	  all competitive offers ***if ***insufficient 	  small business competition

## The Measure of Success – M&M I

- 55 firms submit 430 proposals
- 16 major contracts awarded:
- 5 to small businesses
- 1 to small disadvantaged business
- $927 million total award value
- $220 million awarded to small & small disadvantaged firms

## M&M II Solicitation

**SET-ASIDES:**
- 1 area:	8(a) set-aside
- 3 areas:	Small business set-aside
**CASCADES:**
- 3 areas:	3 tier cascade: 1st 8(a) > 2nd Small Business > 3rd Unrestricted
- 14 areas:	 2 tier Cascade: 1st Small business      > 2nd Unrestricted
**FULL & OPEN - **3 areas

## The Measure of Success – M&M II

- 87 firms submit 243 proposals
- 24 major contracts awarded:
- 14 to small disadvantaged businesses
- 7 to small businesses
- 2 to large businesses
- $1.6 billion total award value
- $1.44 billion awarded to small & small disadvantaged firms

## A Defensible Approach

- GAO upholds M&M I use of cascading
- “A solicitation provision stating that a section 8(a) set-aside will become a small business set-aside if fewer than two acceptable offers from 8(a) firms are received is *not contrary to statute or regulation, or unfair to small businesses*.” (B-281352, B-281353)

## GAO support for cascading...

- “We are aware of **no statute or regulation that would prohibit this approach** [...]. Since the scheme [...] will have the effect of ***increasing the opportunity for small business concerns*** under an otherwise unrestricted solicitation, we have **no basis to object to this set-aside scheme** as unduly burdensome for small business concerns.”
- Cascading also upheld under B-289277,         B-289277.2, B-290676 & B-290676.2

## GAO offers cascading solution...

- GAO states that “...there is no conflict in applying the two preferences....  The solicitation can include a ‘cascading’ set of priorities or preferences whereby competition is limited to small business concerns and [other entities]”
- B-290925, Intermark Inc. (Oct. 2002)

## Cascade Today - New Challenges

- More competing set-aside programs -
- HUBZone
- Service Disabled Veteran Owned Small Business
- Greater complexity in creating cascades
- HUBZone - 8(a) parity
- Harder to justify bundling
- Industry Concerns – B&P Costs

**Notes:**
When HUD-SBA designed cascading set-asides there were only small business and 8(a).

## When should it be used?

- New requirements
- No precedent of performance by small business
- Inconclusive market research 	    (i.e., adequate competition for traditional set-asides not evident)
- Above $3M (if 8(a) included)

## When should it not be used?

- Market research reveals adequate sources for traditional set-aside(s)
- Requirement previously met by small business

## Other Considerations

- Agency’s annual small business goals and current accomplishments
- Which need more $$ awarded this FY?
- Restructuring requirements so that traditional set-asides are possible
- Can work appropriate for small business logically be segregated out?

## What are the key steps?

- Conduct market research
***CCR Dynamic Search***
- Assess status of agency small business goals achievement
- Design cascade
- Evaluate offers
- Select competitive offer at highest tier possible

## Designing a Cascade

- Hierarchy must be followed -
- 8(a), HUBZone,
- SDVOSB,
- Other small businesses, and
- Other-than-small businesses
- Numerous configurations are possible
- Not all business types need be included
- Other-than-small-business always the lowest tier

## Sample Cascade Tiers

- 1st   - 8(a) Concerns*
- 2nd  - HUBZone Small Business Concerns*
- 3rd  - SDVOSBs
- 4th  - Other Small Businesses
- 5th  - Other-Than-Small Businesses
-   *CAUTION! These may* ****not*** cascade to next tier *unless* also classified at that tier (e.g., both 8(a) & HUBZone concern).  They *will* cascade to small business tier (if acceptable).

## Pre-solicitation Market Research

- Written Solicitation

- Clear language
-  on Cascading

- Details on “Cascading” process
- included in solicitation

- Identify which geographic area or CLIN
- will use the cascade, and how each group
-  of offerors will be considered

- Develop clear and specific source
- selection criteria

## Evaluation Process

- Technical
- Management
- Past Performance
- Cost
- Best Value

- All Offers propose
- on the same SOW

- Cascading set-aside kicks in only if “two or more”
- acceptable offers are received for Geographic area or CLIN.
- Process must comply with FAR Part 19 order of precedence
- and the terms of your Solicitation.

- 8(a) -  Must make
- offer and acceptance
- to SBA prior
- to issuing solicitation.
-  For any other small business
-  category see
- 13CFR §124.502(11).

- HUBZone,
- SDVOSB, SBs

- All other
- offerors

## CASCADING

**CASCADING**
**PROCEDURE**

- 8(A) - Not a HUBZone
- but is also a SDVOSB

- Only One
- Acceptable Offer

- HOLDING ROOM

- HUBZone

- Only One
- Acceptable Offer

- SDVOSB

- One SDVOSB; but
- the 8(a) is also a
- SDVOSB

- You can make the award

**MUST HAVE TWO OR MORE FOR CADCADE TO TRIGGER**

## Evaluating Offers

- Start with highest tier -
- Consider only these offers
- Determine acceptable offers
- Determine if adequate competition exists
- If inadequate competition –
- Proceed to next lower tier
- Cascade down acceptable offer *if* possible
- Proceed through tiers, as needed

**Notes:**
Mention the limitation on cascading 8(a)s, HUBZones and SDVOSBs.  Unless they are in the program for the next tier, they may not be cascaded t it.  Instead they are held out until and if the Other Small Business tier is reached.  Covered again on “Wrinkles” slide.

## Adequate Competition

- 8(a) –
- Competitive offers received from at least 2 qualified, responsible concerns; and
- Award can be made at fair market price
- HUBZone, SDVOSB & Small Business –
- Both conditions above; *or*
- One acceptable offer received from responsible concern, *and* Contracting Officer decides to award to it

## Wrinkles...

- 8(a) firm may not cascade to HUBZone tier unless firm is also HUBZone
- 8(a) or HUBZone may not cascade to SDVOSB tier unless also an SDVOSB
- 8(a), HUBZone & SDVOSB may cascade to “Other Small Business” if that tier is reached

## Caution!

- Don’t use prices from lower tier offers (e.g., large businesses) to establish price reasonableness of higher tier offers *unless* the lower tier has been reached
- Don’t forget to make proper 8(a) offers & obtain SBA acceptance of 8(a) awards
- Don’t include tiers for business types that have no formal set-aside authority (e.g., WOSBs)
- Do use best value/tradeoff approach

## Do we need more authority?

- Cascading—
- Can be done under existing regulatory authorities (FAR Parts 19.5, 19.8, 19.13, 19.14)
- Is a flexible, creative use of existing guidance
- Has been upheld by GAO
- Is a process not a new regulatory requirement
- Adherence to all set-aside rules must be the standard
- Establish Governmentwide standard guidance (e.g., best practices vs. new regulation)

## Final Thoughts

- Can be complex
- Requiring activities must understand it
- Clear direction to offerors is a must
- Adherence to solicitation is mandatory
- Use judiciously - abundance of set-aside programs
- No substitute for poor market research

**Notes:**
Both customers (requiring activities) and offerors need to understand