The Government Accountability Office denied the protests of the Office Supplies 3 strategic sourcing contract, leaving the protesters dismayed and in shock.

In issuing their decision Monday, GAO’s lawyers found the General Services Administration did indeed meet the requirements under the Small Business Jobs Act to evaluate the economic impact of OS3 on small businesses.

GAO’s decision comes despite the fact that the Small Business Administration in April ruled that GSA’s analysis was faulty. SBA found GSA’s analysis didn’t fully consider the negative impact OS3 could have on small firms.

But GAO stated the Small Business Jobs Act doesn’t require agencies to develop a “more detailed” or “quantified cost-benefit analysis” and therefore GSA’s determination met the letter of the law.

“GSA conducted market research and considered alternatives to the procurement approach set forth in the solicitation,” GAO’s Susan Poling, GAO’s general counsel, said in the opinion. “Further, the agency prepared a consolidation analysis which recognized that there was a potential for a reduction in sales for small business contractors who did not receive awards under the OS3 solicitation. The agency concluded, however, that the benefits to be gained through OS3 outweigh the potential negative impact to small business concerns. We find that GSA’s analysis addressed the relevant requirements of the SB Jobs Act, and therefore find no basis to sustain the protest.”

GAO addressed SBA’s ruling in the protest decision. Lawyers say SBA’s procurement center representative’s disagreement with GSA’s analysis wasn’t a basis for GAO to conclude the evaluation was unreasonable.

“Because GSA performed a consolidation analysis, notwithstanding its reservations about the need for such an analysis, and we conclude that the analysis was reasonable, we need not resolve whether an analysis was required,” GAO stated.

This is a bit of good news for GSA and the Federal Strategic Sourcing Initiative, which is coming under more fire from vendors and now increasingly Capitol Hill.

GSA officials lauded GAO’s decision.

“This ruling is an important step in our efforts to continue buying smarter on behalf of the federal government to help small businesses and save taxpayer money,” said Tom Sharpe, commissioner of the GSA’s Federal Acquisition Service. “Everyday shoppers know that buying in bulk saves both time and money, and the government has a similar responsibility to leverage its buying power to get the best value for the taxpayer. GSA is firmly committed to this administration’s efforts to realize better value and savings on commonly purchased goods such as office supplies and services such package delivery through strategic sourcing. The agency is also committed to continuing to promote small business participation in strategic sourcing initiatives. We are working to ensure that, as soon as possible, agencies will have access to GSA’s third generation office supply strategic sourcing program, FSSI OS3.”

GSA predicts OS3 will save more than $90 million annually through lower prices. It expects 23 of 24 awards under the contract to go to small businesses, including preferences for service disabled veteran-owned small businesses and HUBZone vendors.

GAO’s ruling also comes just days after GSA suspended the OS2 contract in the wake of 11 bid protests over a proposed six-month extension of the blanket purchase agreement.

“We are shocked by the GAO’s decision to deny our protest as the GSA has provided no specific data on the impact of FSSI,” said Kevin Paul, president of KPaul, a service disabled veteran-owned small business and one of the lead protestors. “The fact that GAO says that, ‘a more detailed or quantified cost-benefit analysis’ is unnecessary under the Small Business Jobs Act is upsetting and should concern businesses in other markets as well. We know without a doubt that strategic sourcing is negatively effecting small, service-disabled veteran-, and veteran- owned businesses and will ultimately cost the taxpayers as well. The OS2 only included 3 veteran-owned small businesses out of the over 100 that are on Schedule 75. The VA spends over $250 million a year on vet programs, particularly those that create jobs and yet this initiative is costing hundreds of vets their livelihood. It’s a shame that vets work to get certified only to be told the VA can’t buy from them due to strategic sourcing. Our fight isn’t over as we are exploring other avenues to help end these harmful acquisition vehicles.”

Another unsuccessful protestor, Dolphin Blue. expressed its disappointment in GAO’s decision.

“We certainly do not agree with the GAO’s ruling, since GAO very irresponsibly and cavalierly failed to mention the requirement placed on GSA, as directed by Congress, the Small Business Act, and Executive Order 13563, to conduct a cost-benefit analysis, looking at not only the economic loss, GSA must also produce data evidencing the loss of jobs,” said Michael LaBuda, chief operating officer of Dolphin Blue. “GSA did not conduct a full cost-benefit analysis which would take into account all economic factors, such as job loss, tax revenue loss, and transfer of costs to the states for unemployment benefits, and indigent health care for the now, recently unemployed, among other factors. FSSI OS3 stands ready to deliver the same negative economic impact that its predecessor, OS2, delivered including the closing of many businesses and the resulting job losses along with the devastating economic and emotional toll that takes on families and taxpayers across the United States. Having reviewed the GAO Report, it is clear that it is full of holes.”

Sam Bornstein, a professor of accounting and taxation at Kean University’s School of Business in Union, New Jersey, and a partner with Bornstein and Song, CPAs and Consultants in Oakhurst, New Jersey, and who’s been an outspoken critic of FSSI, said he disagreed with GAO’s decision.

“The GAO does not consider Job Loss for FSSI. My fear is that the job loss factor, which in my mind is an essential element in a study of FSSI, has been discounted,” he said by email. “The recognition that job loss is a major factor has been a recent development. In fact, Cass Sunstein [the former administrator in the Office of Information and Regulatory Affairs] was instrumental to include cost-benefit analysis and economic cost of job loss in Executive Order 13563 [President Barack Obama signed in January 2011] . The job loss issue should be considered, but it is not even mentioned as a factor in any GAO report.”

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