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FAR 19.1405: Service-disabled veteran-owned small business set-aside procedures

Comptroller General - Key Excerpts

Generally, the decision whether to set aside a procurement for SDVOSB concerns is a business judgment within the contracting officer’s discretion, which we will not disturb absent a showing that it was unreasonable. Aero Sage LLC, B-414314, B‑414314.2, May 5, 2017, 2017 CPD ¶ __ at 6; Starlight Corp., Inc., B-410471.2, Dec. 30, 2014, 2014 CPD ¶ 383 at 5. No particular method of assessing the availability of capable small businesses is required; rather, the assessment must be based on sufficient facts so as to establish its reasonableness. Starlight Corp., Inc., supra; Mountain West Helicopters, LLC; Trans Aero, Ltd., B‑408150, B‑408150.2, July 1, 2013, 2013 CPD ¶ 152 at 3. We will not question an agency's set aside determination where the record shows that the evidence before the contracting officer was adequate to support the reasonableness of the conclusion that small business competition reasonably could be expected. Starlight Corp., Inc., supra.

Further, in making set-aside decisions, agencies need not make actual determinations of responsibility or decisions tantamount to determinations of responsibility; rather, they need only make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract. InfoReliance Corp., B-413298, Sept. 19, 2016, 2016 CPD ¶ 263 at 4. Here, as explained below, Walker does not show that the VA unreasonably determined that it would receive offers from two or more SDVOSB firms at fair and reasonable prices.

The agency’s market research included a review of the prior acquisition history and searches of the VA Western States Consortium blanket purchase agreement website, the National Acquisition Center contract catalog, and the General Services Administration’s website. AR, Tab 3, Market Research Report, at 1-3. In addition, the agency posted a sources sought notice, conducted a search on Vetbiz.gov, and emailed ninety-one vendors found on Vetbiz.gov with information about the procurement. Id. at 2.

Some of the firms identified in those searches were found to be unable to provide the required equipment. Id. at 2. The VA, however, received responses from two interested SDVOSB concerns that provided capability statements and price estimates, which the agency deemed to be fair and reasonable. Id. During this protest, the agency provided the protester with the names of the two firms identified in the agency’s market research. Walker has not provided a reasonable basis on which to question the agency’s assertion that competition between these two SDVOSB firms will not result in award being made at a reasonable price.

Walker asserts that the agency’s market research failed to consider whether an SDVOSB concern would meet the limitation on subcontracting rule and whether an SDVOSB nonmanufacturer would be providing the product of an SDVOSB concern. Protest at 4. Here, the agency incorporated by reference FAR clause 52.219-27, Notice of Service Disabled Veteran-Owned Small Business Set Aside, and assigned NAICS code 334510, Electromedical and Electrotherapeutic Apparatus Manufacturing, to the RFQ. FAR clause 52.219-27, Notice of Service Disabled Veteran-Owned Small Business Set Aside, states that SDVOSB concerns providing products as manufacturers agree that at least 50 percent of the costs of manufacturing will be performed by the concern or other SDVOSB concerns.

Ordinarily, in order to qualify as a small business concern to provide manufactured products or other supply items, an offeror must either be the manufacturer or producer of the end item being procured, or if it does not manufacture the item being purchased, the offeror must comply with what is known as the nonmanufacturer rule. 13 C.F.R. § 121.406(a). The nonmanufacturer rule provides that the offer of a nonmanufacturer small business concern can be considered, provided, among other things, that the small business concern represents that it will supply the product of a domestic small business manufacturer or processor, or that a waiver of this requirement is granted by the SBA. 15 U.S.C. § 637(a)(17); see also 13 C.F.R. § 121.406.

Where the nonmanufacturing rule applies to a procurement and the agency’s market research fails to consider whether the firms identified in the market research can comply with the rule, the market research is unreasonable. Triad Isotopes, Inc., B-411360, July 16, 2015, 2015 CPD ¶ 220 at 7. The SBA is permitted to waive the nonmanufacturer rule where the SBA has determined that no small business manufacturer or processor can reasonably be expected to offer a product meeting the specifications or where no small business manufacturer or processor is available to participate in the procurement. 15 U.S.C. § 657s(a)(4). When SBA issues a waiver of the nonmanufacturer rule, a firm can supply the product of any size business without regard to the place of manufacture. 13 C.F.R. § 121.406(b)(7).

Here, as noted above, the agency notified offerors that the SBA had issued a class waiver of the nonmanufacturer rule for the assigned NAICS code. Consequently, we see no merit to the protester’s contention that the agency’s market research failed to consider whether the firms identified had the capability to perform and could comply with the rule.

Walker also argues that the agency failed to adequately assess whether the two identified firms could comply with the terms of the solicitation. See Comments on AR at 5-6. As noted above, the agency’s market research considered the capability of the vendors to meet the requirements. The agency was not required to make a determination of responsibility in the course of conducting market research. InfoReliance Corp., supra. (Walker Development & Trading Group, Inc. B-414365: May 18, 2017)

AeroSage’s allegations concern requirements under the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the VA Act). 38 U.S.C. § 8127. Specifically, the VA Act, together with VA’s implementing regulations, require VA to set aside acquisitions for SDVOSBs whenever it is determined that there is a reasonable expectation that offers will be received from at least two SDVOSBs and that award can be made at a fair and reasonable price. 38 U.S.C. § 8127(d); Veterans Administration Acquisition Regulation (VAAR) § 819.7005(a). We refer to this requirement as the VA Act’s Rule of Two. The VA Act also requires that agencies procuring goods or services on behalf of VA--such as DLA here--must comply with the VA Act Rule of Two “to the maximum extent feasible.” 38 U.S.C. § 8127(j)(1).

AeroSage challenges DLA’s decision not to conduct this procurement as an SDVOSB set‑aside on two principal grounds. First, the firm alleges that DLA’s market research was “incomplete and improper” and that DLA “artificially restricted” its research to “Wisconsin-capable companies.” Protest at 3; Comments at 4-5; Supp. Comments at 4. Second, AeroSage alleges that it was improper for the contracting officer to decide that AeroSage and SageCare did not satisfy the VA Act’s Rule of Two because they are owned by the same individual. Comments at 1-2; Supp. Comments at 3.

In response to the allegation regarding the market research, DLA asserts that its market research was sufficient under the circumstances. In this regard, DLA describes the different types of market research the contracting officer performed, including her search in VA’s VIP database for SDVOSBs registered in Wisconsin under the applicable NAICS code. AR at 7-8. With regard to the decision to limit the VIP database research to firms registered in Wisconsin, DLA points out that the procurement involved a “small dollar value” and a near-immediate delivery schedule. AR, at 6; Supp. AR at 6‑7. Finally, in response to AeroSage’s allegation regarding the contracting officer’s decision that the VA Act’s Rule of Two had not been met, DLA states that because of the firms’ common ownership, the contracting officer did not view them to be independent. AR at 5; Supp. AR at 4. Thus, she was concerned that since the only two SDVOSBs that were identified as being reasonably likely to submit quotations were under common ownership, there was not adequate price competition, and, therefore, there was not a reasonable expectation that award could be made at a fair and reasonable price. See AR, Tab 12 Mem. for Rec., at 1.

After considering DLA’s response to the protest, our Office solicited the views of VA and SBA. In response, VA commented that DLA adhered to the market research requirements of the VAAR by reviewing the VIP database to identify whether there were two SDVOSBs or VOSBs capable of meeting the requirement that were likely to submit a quotation at a fair and reasonable price.[3] VA Comments at 1. On this basis, VA requested that our Office deny the protest. Id.

SBA commented on DLA’s market research as follows:

[T]he agency limited its search to verified SDVOSBs that had Wisconsin included in their service area list. We believe it was reasonable for the contracting officer to posit that a firm whose service area did not include Wisconsin would not be expected to submit an offer for a purchase at this dollar level of approximately $10,000.

SBA Comments at 1. With regard to the contracting officer’s conclusion that due to common ownership, AeroSage and SageCare did not meet the VA Act’s Rule of Two requirements, the SBA commented as follows:

[D]uring a typical Rule of Two determination, an agency determines whether there is a reasonable expectation that the contract will be awarded at a fair market price. Agencies can rely on the expectation of price competition to satisfy the fair-market-price requirement. Expecting only co-owned firms to submit offers, however, would not reasonably support an expectation of price competition. . . . Given these facts, we do not find it unreasonable for the agency to determine that it lacked a reasonable expectation of receiving offers from two or more SDVOSBs and award would be made a fair and reasonable price.

Id. at 2 (internal citations omitted). For the reasons that follow, we agree with DLA, VA, and SBA that AeroSage’s protest should be denied.

We first address the allegation regarding the sufficiency of DLA’s market research. Our Office has established that the determination of whether there is a reasonable expectation of receiving offers from two or more SDVOSBs that are capable of performing the required work is a matter of informed business judgment within the contracting officer’s discretion that we will not disturb absent a showing that it was unreasonable. See In and Out Valet Co., B-411019, Apr. 15, 2015, 2015 CPD ¶ 128 at 3; Crosstown Courier Serv., Inc., B-410936, March 12, 2015, 2015 CPD ¶ 107 at 4. The requirements of the VA Act do not dictate the use of any particular methodology in assessing the availability of SDVOSBs to perform a requirement; measures such as prior procurement history, market surveys, advice from the agency’s small business specialist, and information concerning prospective offerors’ business history and capability or capacity may all provide a reasonable basis for a decision to set aside, or not set aside, a requirement for SDVOSBs. See In and Out Valet Co., supra; Crosstown Courier Serv., Inc., B-410936, supra. Further, we have found that the circumstances of a procurement may support an agency’s decision to reasonably focus its market research on the geographic area in which performance is to occur. See In and Out Valet Co., supra; Crosstown Courier Serv., Inc., B-410936, supra; Crosstown Courier Serv., Inc., B-407404, Nov. 30, 2012, 2012 CPD ¶ 333 at 3.

Here, the record reflects that DLA was faced with an urgent, but low-dollar requirement for fuel. See AR, Tab 12, Mem. for Rec., at 1. The record further reflects that VA needed to take delivery of the fuel at a site in Milwaukee, Wisconsin. Id. Given these circumstances, we find it reasonable that DLA decided to focus its market research on fuel vendors that had indicated they serviced the geographic area of Wisconsin. See In and Out Valet Co., supra; Crosstown Courier Serv., Inc., B-410936, supra. Given the discretion afforded to contracting officers with regard to market research, AeroSage’s arguments to the contrary provide no basis to question DLA’s actions.

We similarly see no basis to question the contracting officer’s conclusion that due to AeroSage’s and SageCare’s common ownership, the VA Act’s Rule of Two had not been met. As shown above, the VA Act’s Rule of Two has two prongs. First, there must be a reasonable expectation that at least two SDVOSBs will submit an offer (or, in the case here, a quotation). Second, there must be a reasonable expectation that award will be made at a fair and reasonable price. Here, the record shows that through reasonable market research, the contracting officer identified only two SDVOSBs that she reasonably expected to submit a quotation in response to the solicitation. See AR, Tab 12, Mem. for Rec., at 1. The record further shows that she documented concern that due to their common ownership (and the fact that the principal and negotiator for both firms is the same individual), these two firms essentially would be competing against each other. See id. Thus, she decided that adequate price competition would not occur and, therefore, there was not a reasonable expectation that award could be made at a fair and reasonable price. See AR, Tab 12 Mem. for Rec., at 1. The record supports the contracting officer’s finding regarding the common ownership of AeroSage and SageCare. See AR, Tab 10, SBA Size Determination No. 3-2017-010; Comments at 2. Under these circumstances, we will not question her judgment that the dual requirements of the VA Act’s Rule of Two were not met.  (AeroSage LLC B-414314, B-414314.2: May 5, 2017)
 


The protester argues that the sole-source award to ARG Tactical, an SDVOSB, is “unlawful…[because] the requirement could be satisfied through an order under the [FSS].” Protest at 1. The agency states that the Veterans Benefit Act of 2003 and implementing regulations provide a contracting officer with the discretion to issue an SDVOSB sole-source award. AR at 2-4.

Section 36 of the Small Business Act, 15 U.S.C. § 657f, sets forth the provisions of the Veterans Benefits Act of 2003, Pub. L. No. 108-183, 117 Stat. 2651, 2662 (2003), and provides the contracting officer with the discretion to issue an SDVOSB sole-source award if certain conditions are met. 15 U.S.C. § 657f(a) (“a contracting officer may award a sole source contract” to an SDVOSB). However, an agency may not issue an SDVOSB sole-source (or set-aside) award if the procurement would otherwise be made using Federal Prison Industries (18 U.S.C. §§ 4124 and 4125) or the Javits-Wagner-O'Day (JWOD) Act (41 U.S.C. § 46 et seq.). Id. § 657f(c). Both SBA and the Federal Acquisition Regulatory Council have implemented these statutory provisions in regulations, which state that an agency may not issue an SDVOSB sole-source award if the requirement can be satisfied using Federal Prison Industries, the JWOD Act, or is currently being performed under the authority of the SBA’s 8(a) Business Development program. 13 C.F.R. § 125.20(a); FAR §§ 19.1404(a),(d); see also 69 Fed. Reg. 25274 (May 5, 2004) (“The law limits use of SDVOSB procurement authority to procurements that would not otherwise be made from Federal Prison Industries (section 4124 or 4125 of title 18, United States Code) or the [JWOD] Act (41 U.S.C. 46 et seq)”).[6] Therefore, there is nothing in the Small Business Act or implementing regulations that preclude an SDVOSB sole-source award if the requirement can be satisfied using the GSA’s FSS.

In addition, the FAR addresses the priorities for use of certain mandatory sources and the use of “other sources,” such as the GSA’s FSS. See FAR § 8.002, Priorities for Use of Mandatory Sources; FAR § 8.003, Use of Other Mandatory Sources; FAR § 8.004, Use of Other Sources. Specifically, the FAR states that if agencies cannot satisfy their requirements using mandatory sources, then:

[A]gencies are encouraged to consider satisfying requirements from or through the non-mandatory sources listed in paragraph (a) of this section (not listed in any order of priority) before considering the non-mandatory source listed in paragraph (b) of this section. When satisfying requirements from non-mandatory sources, see 7.105(b) and part 19 regarding consideration of small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business (including 8(a) participants), and women-owned small business concerns.

(a)(1) Supplies. Federal Supply Schedules, Governmentwide acquisition contracts, multi-agency contracts, and any other procurement instruments intended for use by multiple agencies, including blanket purchase agreements (BPAs) under Federal Supply Schedule contracts (e.g., Federal Strategic Sourcing Initiative (FSSI) agreements accessible at http://www.gsa.gov/fssi (see also 5.601)).

* * * * *

(b) Commercial sources (including educational and non-profit institutions) in the open market.

FAR § 8.004. The preamble of the Federal Register notice announcing this final FAR regulation responded to various comments on the proposed rule and discussed whether the rule was treating FSS and other similar contracts as mandatory sources. 78 Fed. Reg. 80376, 80377 (Dec. 31, 2013). In response, the FAR Council stated that “[t]he use of FSS is not required” and the “use of FSS is not mandatory”; however, agencies are encouraged to consider “using certain existing non-mandatory sources” before considering sources in the open market. Id.

Thus, there is nothing in statute or regulation stating that it is unlawful for an agency to issue an SDVOSB sole-source award when the requirement could be satisfied through an order under the FSS, as long as all conditions for a sole-source award are met. This protest allegation is denied.

Market Research

The Small Business Act states that an agency may issue a sole-source SDVOSB award if “the contracting officer does not have a reasonable expectation that 2 or more small business concerns owned and controlled by service-disabled veterans will submit offers for the contracting opportunity.” 15 U.S.C. § 657f(a). The implementing regulations state the same. See 13 C.F.R. § 125.20(a); FAR § 19.1406(a)(1) (SDVOSB sole-source is permitted when the “contracting officer does not have a reasonable expectation that offers would be received from two or more service-disabled veteran-owned small business concerns”).

The protester argues that the agency’s own market research shows that there are at least two resellers of the Benchmade Knife combat knives on GSA’s FSS and, therefore, the sole-source award to ARG Tactical violates statute and regulations because 2 or more SDVOSB companies are capable of supplying the knife. Supplemental Protest at 3-5, citing to AR, Tab 5, Market Research, at 28-29. The agency responds that only one SDVOSB expressed an interest in a long term contract for the combat knives. Supplemental AR at 4-5.

The determination as to whether an agency expects two or more SDVOSBs to submit an offer is a matter of business judgment within the contracting officer's discretion that we will not disturb absent a showing that it was unreasonable. See DNO Inc., B-406256, B-406256.2, March 22, 2012, 2012 CPD ¶ 136 at 4. Although agencies need not use any particular methodology when conducting market research, measures such as prior procurement history, market surveys, and advice from the agency’s small business specialist may all constitute adequate grounds for a contracting officer’s decision. See id. at 4-5. Further, this Office has stated that an agency may issue an SDVOSB sole-source award even where another SDVOSB exists that could conceivably perform the contract, but has expressed no interest in the work. MCS Portable Restroom Serv., B-299291, Mar. 28, 2007, 2007 CPD ¶ 55 at 7; see also Chicago Dryer Co., B-401888, Dec. 8, 2009, 2009 CPD ¶ 253 at 2 (an agency is not required to contact all potential sources when conducting market research regarding the feasibility of sole-source procurement).

Here, DLA conducted market research, which included a sources sought notice, a review of all responses received expressing an interest in the acquisition, and a review of the prior procurement history. AR, Tab 4, Justification for Other than Full and Open Competition; Tab 5, Market Research. Specifically, the record shows that DLA received responses from only Benchmade Knife, Gerber, and ARG Tactical concerning a long term IDPO, that prior acquisition history since 2010 showed that awards for the combat knives had only been made to these same three companies, and that DLA had contracted with ARG Tactical on the last two acquisitions for the knives. AR, Tab 4, Justification for Other than Full and Open Competition, at 3; Tab 5, Market Research, at 39-40; AR at 5. DLA therefore concluded that ARG Tactical was the sole SDVOSB that expressed an interest in the acquisition for combat knives. Id. Consequently, DLA reasonably exercised its discretion in determining that the acquisition was appropriate for an SDVOSB sole-source award because its market research showed that only one SDVOSB was interested in the long term IDPO. This protest allegation is denied.

SDVOSB Status

Finally, the protester contends that DLA was required to protest ARG Tactical’s SDVOSB status to the SBA before issuing the sole-source award. Protest at 9-14.

The SBA, and not our Office or the procuring agency, is the designated authority for determining whether a firm is an eligible SDVOSB under the SBA’s program, and it has established procedures for interested parties to challenge a firm’s status. See Singleton Enters.-GMT Mech., A Joint Venture, B-310552, Jan. 10, 2008, 2008 CPD ¶ 16 at 3; see also 13 C.F.R. §§ 125.24-27; FAR § 19.307. Therefore, we will generally dismiss a protest challenging a firm’s small business or socio-economic status. Bid Protest Regulations, 4 C.F.R. § 21.5(b)(1). However, a limited exception applies where a protester argues that the awardee’s offer shows, on its face, that it is not eligible for award as a small business, or in this case as an SDVOSB; in those instances, we will review the reasonableness of the contracting officer’s decision not to refer the matter to the SBA. See Al-Razaq Computing Services, B-410491, B-410491.2, Jan. 7, 2015, 2015 CPD ¶ 28 at 4; Hydroid LLC, B-299072, Jan. 31, 2007, 2007 CPD ¶ 20 at 3.

Here, the protester argues that publicly available information, but not anything on the face of ARG Tactical’s proposal, calls into question its SDVOSB status. Protest at 9-14. The record shows that the agency reviewed ARG Tactical’s quotation and SAM profile prior to award, and both showed that ARG Tactical represented that it was an SDVOSB. AR at 4; AR, Tab 7, ARG Tactical Quotation, at 19; Tab 8, ARG Tactical SAM Profile, at 1, 6. Thus, the protester has not shown that anything on the face of ARG Tactical’s proposal would have called into question its SDVOSB status. We therefore deny this protest issue.

The protest is denied.   (Fiskars Brands, Inc., dba Gerber Legendary Blades B-412730, B-412730.2: May 20, 2016)  (pdf)


Spur argues that the VA’s decision not to set the procurement aside for SDVOSB concerns was in contravention of the VA Act’s Rule of Two, which is implemented by the VA Acquisition Regulation (VAAR) §§ 819.7004 and 819.7005.[10] For the reasons set forth below, we agree.

The Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. § 8127 (VA Act), implemented by VAAR §§ 819.7004 and 819.7005, created the Veterans First Contracting Program and provides the VA with independent authority to set aside contracts for SDVOSB and VOSB concerns. Buy Rite Transport, B-403729, B-403768, Oct. 15, 2010, 2010 CPD ¶ 245 at 2-3; Apex Ltd., Inc., B-402163, Jan. 21, 2010, 2010 CPD ¶ 35 at 2. Under the Veterans First Contracting Program, acquisitions must be set aside for SDVOSB concerns if the VA determines that there is a reasonable expectation that offers will be received by at least two SDVOSB concerns and that award can be made at a fair and reasonable price. 38 U.S.C. § 8127(d). We will refer to this requirement, grounded in Title 38, as the VA Act’s Rule of Two.

Here, there is no dispute in the record that the literal requirement as set forth in the VA Act’s Rule of Two was satisfied. Nonetheless, the agency maintains that because it needs a minimum of 14 contracts, the number of SDVOSB concerns capable of performing the required work was insufficient to meet its needs. As a result, the VA concluded it was not required to set aside the procurement, or any subset of the procurement, for SDVOSB concerns.

During development of this protest, our Office asked the parties to brief the question of whether the VA Act’s Rule of Two applies to multiple-award IDIQ contracts. The agency responded that “38 USC 8127(d) means that a set aside is required when there will be two or more SDVOSB offers per contract.” Agency Brief (Feb. 8, 2016) at 2.

The plain language of the VA Act does not support the agency’s position. Instead, the VA Act simply states that

a contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.

38 U.S.C. § 8127(d) (emphasis added). Nothing in the language of the VA Act supports the agency’s position that in the context of multiple-award contracts, the VA Act’s Rule of Two requires set asides only when there will be two or more SDVOSB or VOSB offers per contract.

In addition, the agency does not argue that its implementing regulations exempt, or even address, whether the VA Act’s Rule of Two applies to multiple-award IDIQ contracts. Rather, the agency contends that “common-sense and sound business judgment” dictate that the VA Act’s Rule of Two should not be applied when the number of qualified SDVOSB concerns is less than the agency’s anticipated minimum number of awards because it is impractical. See Agency Brief (Feb. 8, 2016) at 2-3. In this regard, the agency argues that “blindly apply[ing] the [VA Act’s] Rule of [Two]” to require the agency to set aside a multiple-award IDIQ procurement for SDVOSB concerns would result in “abandon[ing] the benefits of competition and simply award[ing] the 7-9 SDVOSBs with contracts.” This, the agency contends, “fails to consider the real needs of the [agency],” which “was surely not the intent of Congress.” Id. at 1, 3.

Congress’s apparent intent when it passed the VA Act was to broadly foster participation in VA procurements by SDVOSB and VOSB concerns.[14] See Aldevra, B-406205, Mar. 14, 2012, 2012 CPD ¶ 112 at 5. Prior to the enactment of the VA Act, contracting officers were allowed, but not required, to restrict competition to SDVOSB and VOSB concerns under the Small Business Act, as amended by the Veterans Benefits Act of 2003. See 15 U.S.C. § 657f. Under the 2006 VA Act at issue here, the VA “shall” set aside its acquisitions for SDVOSB or VOSB concerns once the Rule of Two is satisfied. Further, in implementing the VA Act, the VA additionally required that “[i]n determining the acquisition strategy applicable to an acquisition, the contracting officer shall consider, in the following order of priority, contracting preferences that ensure contracts will be awarded” first to SDVOSB concerns, then VOSB concerns, to the extent the Rule of Two is met, prior to considering whether to award to any other category of small business contracting preferences, including small business concerns. VAAR §§ 819.7004, 819.7005 (emphasis added).

We cannot find reasonable the agency’s decision not to set aside this acquisition, or any portion of this acquisition, for SDVOSB or VOSB concerns because its market research yielded fewer of these concerns than the anticipated number of contract awards. We recognize it is within the agency’s discretion to determine the number of IDIQ contracts required to satisfy its needs. However, we see no basis to conclude that the agency has the discretion to ignore the requirements of the VA Act and the VA’s own implementing regulations because it anticipates making multiple awards under an IDIQ contract.

In conclusion, the VA Act and its implementing regulations require that the agency set aside its acquisitions for SDVOSB and VOSB concerns when the conditions of the statute are met. There is no dispute that those conditions are satisfied here. Since we conclude that the agency’s decision not to set aside any of these contracts was inconsistent with the requirements set forth in the VA Act and its implementing regulations, we sustain the protest.  (Spur Design, LLC B-412245.3: Feb 24, 2016)  (pdf)


 FRM asserts that it was unreasonable for the agency to limit the market research to the local geographic area because, according to the protester, the “majority of the support requirements for this contract will be performed at the contractor’s own facility.” Comments at 5-6. The agency responds that:

it was necessary to limit . . . market research to the states of Oregon, Washington and Idaho because the solicitation clearly stated under the heading Construction Period Services that site visits would be expected . . . and again under Supplement B of the solicitation . . . that the ‘A/E shall visit proposed project site, as required’ . . .

Supplemental Agency Report at 4.

Under the Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. § 8127, and the VA’s implementing regulations, VA Acquisition Regulation, 48 C.F.R. §§ 819.7004, 819.7005, the VA is required to set aside acquisitions for [service-disabled veteran-owned small business] SDVOSBs whenever it determines that there is a reasonable expectation that offers will be received from at least two SDVOSB firms and that award can be made at a fair and reasonable price. 38 U.S.C. § 8127(d); 48 C.F.R. § 819.7005. The determination as to whether there is a reasonable expectation of receiving offers from two or more SDVOSB firms that are capable of performing the required work is a matter of informed business judgment within the contracting officer’s discretion that we will not disturb absent a showing that it was unreasonable. Crosstown Courier Serv., Inc., B-410936, Mar. 12, 2015, 2015 CPD ¶ 107 at 4; Buy Rite Transp., B-403729, B-403768, Oct. 15, 2010, 2010 CPD ¶ 245 at 3. The requirements of the 2006 VA Act do not dictate the use of any particular methodology in assessing the availability of SDVOSB firms to perform a requirement; measures such as prior procurement history, market surveys, advice from the agency’s small business specialist, and information concerning prospective offerors’ business history and capability or capacity may all provide a reasonable basis for a decision to set aside, or not set aside, a requirement for SDVOSBs. Crosstown Courier Serv., Inc., B-410936, supra; FlowSense, LLC, B-310904, Mar. 10, 2008, 2008 CPD ¶ 56 at 3. Further, we have held that, even where an RFP does not restrict competition to firms located in a particular geographical area, an agency may focus its market research on the geographical area in which performance will take place and consider the likelihood that firms from outside it would respond to the solicitation. In and Out Valet Co., B-411019, Apr. 15, 2015, 2015 CPD ¶ 128 at 3; Crosstown Courier Serv., Inc., B-407404, Nov. 30, 2012, 2012 CPD ¶ 333 at 3.

Here, we conclude that the agency’s determination here that there was not a reasonable expectation that offers would be received from at least two SDVOSB firms that are capable of performing the required work is not supported by the record. As noted by the agency, our cases have recognized that in appropriate circumstances an agency may focus its market research on the geographical area in which performance will take place after reasonably concluding that there is little likelihood that firms from outside the area would respond to the solicitation. See, e.g., In and Out Valet Co., supra, at 4-5. The cases cited by the agency, however, are readily distinguished from the circumstances here, since they involved requirements that likely would be performed by local firms, such as those requirements necessitating a substantial, regular presence by the contractor at specific sites or a specific work area. See, e.g., Crosstown Courier Serv., B‑407404, supra (courier services in a designated area); In and Out Valet Co., supra (valet parking services).

Here, in contrast, the protester asserts that A/E firms are typically not required to be “on site” for extended periods of time, and the level of effort that would actually need to be performed within the VISN area would be “a small percentage” of the overall required effort. Comments at 3. In this regard, the protester explains that:

Whether in support of an upcoming facility renovation or a part of a ‘‘Statement of Conditions” review, the time spent on site by the engineer(s) is relatively small in comparison to the time needed to develop the design documentation or final report of code compliance or conditions; all of which would be performed at the contractor’s facility, with all submissions of documents, including drafts for Government review, now being performed electronically.

Id.

Further, we note that the protester’s position appears to be consistent with the solicitation, which indicates that the A/E services to be performed under the RFP are “Design Services,” which include studies, schematics/design development, contract drawings, specifications, cost estimates, and/or construction period services, drawing review services, code compliance reviews, and Joint Commission Statement of Conditions support. SOW at 1. Although the RFP makes it clear that site visits will be necessary, see, e.g., SOW at 2 (the required construction period services will include “conducting site visits,” while the required existing facility code review “will include on-site inspection and review”), it is not evident from the solicitation how often the required services will require substantial performance “on site” in addition to design services that can be performed at the A/E firm’s office(s). In this regard, when asked by our Office to respond to the protester’s assertions, the agency did not specifically address the frequency of when the contractor would be required to visit the VA facilities, and instead noted only that the solicitation provides for site visits “as required.” Supplemental AR at 4; see RFP, Supplement B, at 3. Further, when the agency considered whether the solicitation should be restricted to A/E firms located within the VISN 20 region, the agency project engineer rejected setting a “distance limit,” proposing instead only that firms that are located closer should be rated higher. AR, Tab 4, Mar. 24, 2015, at 30. Thus, it appears that the project engineer recognized that firms located outside of the VISN 20 region could perform the contract. In any case, given that the VISN 20 region includes facilities in Washington, Oregon, Idaho, and Alaska, it seems likely that even A/E firms located within VISN 20 will be required to travel significant distances away from their office(s) for necessary site visits.

Thus, the record here does not support the agency’s determination to limit its market research to firms within the VISN 20 region. Further, as indicated above, the contract specialist, in a database search specifically directed by the contracting officer, found more than 127 profiles of SDVOSB concerns nationwide “matching the criteria.” Id., May 4, 2015, at 64. Thus, it appears that had the agency expanded its market research beyond the VISN 20 region it would have discovered numerous SDVOSB A/E concerns doing fire protection work.

Although the agency now argues that the inadequate number of SDVOSB A/E firms in the VISN 20 region warranted not setting aside the procurement for SDVOSB firms, the protest record suggests that agency officials may, in fact, have been concerned with presumed poor performance by an SDVOSB awardee. In this regard, when the contracting officer, in reconsidering the set-aside decision after receiving the contract specialist’s expanded search results, indicated on May 4 that a “100% SDVOSB set aside” may be necessary, id., the agency project engineer responded that he was “definitely opposed to setting this solicitation aside for SDVOSB,” due to the poor performance of the SDVOSB contractor in the VISN 6 and VISN 20 regions. Id. at 63-64. As noted, the engineer concluded that, “[i]n my opinion, if we are going to be forced to set this aside for SDVOSB, then we should cancel the solicitation. It doesn’t make any sense to hire someone who cannot do the job properly.” Id. In our view, however, such anecdotal evidence of poor performance by an SDVOSB contractor, unsupported by any detailed analysis indicating that a small business concern would be unlikely to possess the specific skills and resources needed to perform the specific work required under the contemplated contract, does not represent the reasonable exercise of informed business judgment required under the statute. See Crosstown Courier Serv., Inc., B-410936, Mar. 12, 2015, 2015 CPD ¶ 107 at 4.  (Fire Risk Management, Inc. B-411552: Aug 20, 2015)  (pdf)


IOVC asserts that the VA failed to perform sufficient market research to ascertain the interest and capability of SDVOSBs [service-disabled veteran-owned small business] to perform the requirement. Specifically, the protester notes that there are 46 SDVOSB firms nationwide registered under NAICS code 812930, and that four of those firms are currently performing contracts under that NAICS code. Therefore, IOVC contends that the agency abused its discretion in failing to set the procurement aside for SDVOSBs.

Under the Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. § 8127, and the VA’s implementing regulations, VA Acquisition Regulation (VAAR), 48 C.F.R. §§ 819.7004, 819.7005, the VA is required to set aside acquisitions for SDVOSBs whenever it determines that there is a reasonable expectation that offers will be received from at least two SDVOSB firms and that award can be made at a fair and reasonable price. 38 U.S.C. § 8127(d); VAAR § 819.7005. The determination as to whether there is a reasonable expectation of receiving offers from two or more SDVOSB firms that are capable of performing the required work is a matter of informed business judgment within the contracting officer’s discretion that we will not disturb absent a showing that it was unreasonable. Crosstown Courier Serv., Inc., B-410936, March 12, 2015, 2015 CPD ¶ 107 at 4; Crosstown Courier Serv., Inc., B-407404, Nov. 30, 2012, 2012 CPD ¶ 333 at 3; Buy Rite Transp., B-403729, B-403768, Oct. 15, 2010, 2010 CPD ¶ 245 at 3. The requirements of the 2006 VA Act do not dictate the use of any particular methodology in assessing the availability of SDVOSB firms to perform a requirement; measures such as prior procurement history, market surveys, advice from the agency’s small business specialist, and information concerning prospective offerors’ business history and capability or capacity may all provide a reasonable basis for a decision to set aside, or not set aside, a requirement for SDVOSBs. Crosstown Courier Serv., Inc., B-410936, supra; FlowSense, LLC, B-310904, Mar. 10, 2008, 2008 CPD ¶ 56 at 3. Further, we have held that, even where an RFP does not restrict competition to firms located in a particular geographical area, an agency may focus its market research on the geographical area in which performance will take place and consider the likelihood that firms from outside it would respond to the solicitation. Crosstown Courier Serv., Inc., B-407404, supra, at 3.

We conclude that the agency’s market research and resulting set-aside decision were reasonable. The statement of work for this procurement requires the successful contractor to provide bonded, fully trained, experienced staff with valid Washington State driver licenses to perform valet parking services for approximately 650 to 750 vehicles daily at VA Puget Sound Health Care System facilities located in Seattle, Washington. RFQ at 7, 9. In addition, the RFQ requires the successful contractor to have the valet parking site ready to provide full service by the February 1, 2015 start date. See RFQ at 1, 5, 8; AR, Tab 2, Market Research Report, at 1; AR, Tab 4, E-mails, at 24. Given these requirements, we find that there was nothing unreasonable in the agency’s decision to focus its market research on the geographic area in which performance was to occur, and to consider the likelihood that firms from outside of the geographic area would be able to effectively and timely perform the contemplated contract.

As noted above, in conducting its market research, the agency used the NAICS code for parking lots and garages to search the VetBiz database to identify potential SDVOSB firms, then researched the firms’ websites to determine whether the company performed valet parking services. The agency initially searched only in Washington state and found that there were no SDVOSB firms under the relevant NAICS code that perform valet parking services. The agency then expanded its search to the nearby states of Oregon, Idaho, and California, and found only one SDVOSB firm (located in California) under the relevant NAICS code that performs valet parking services. Finally, the agency removed all geographic restrictions and identified five other firms nationwide under the relevant NAICS code that perform valet parking services. The agency considered the geographic location of each of these companies--Texas, Virginia, Pennsylvania, North Carolina, and South Carolina--and concluded that given their distance from the site of performance, there was not a reasonable expectation of receiving offers from two or more SDVOSB firms that would be capable of performing the required work at a reasonable price. Although the protester lists other websites and databases that it contends the agency should have searched, Comments at 1-2, the protester has not shown the agency’s research here to be unreasonable in light of the discretion afforded to contracting officers. See Crosstown Courier Serv., Inc., B‑410936, supra.

Finally, the agency also considered the procurement history of this requirement. As set forth above, the agency considered the fact that it had previously made award to an SDVOSB firm, which was unable to perform the contract. After terminating the first contract, the agency awarded to another SDVOSB that was also unable to perform the contract. The agency’s inability to find an SDVOSB firm ultimately led the agency to issue a sole source contract to the incumbent contractor to perform the required services until the agency could conduct a new competition. AR, Tab 4, E-mails, at 36.

Based on this record, we find that the agency reasonably concluded that there was no reasonable expectation that offers would be received from at least two SDVOSB firms capable of performing the required work at a fair and reasonable price. The agency conducted searches of the VetBiz database, reasonably focused its market research on the geographical area in which performance will take place, and considered the likelihood that firms from outside it would respond to the RFQ. The agency did further market research by reviewing the websites of SDVOSB firms with the relevant NAICS code to investigate whether these firms perform valet parking services. In addition, the agency reasonably considered the fact that two SDVOSBs had previously been unable to perform the incumbent contract. In these circumstances, we find no basis to sustain the protest against the agency’s determination not to set aside the procurement for SDVOSBs.  (In and Out Valet Company B-411019: Apr 15, 2015)  (pdf)


 Crosstown challenges the adequacy of the VA’s market research and ultimate determination not to set aside the RFP for SDVOSB concerns. The protester’s primary complaint is that the agency unreasonably limited its market research to Minnesota, instead of considering SDVOSB couriers nationwide. See Protest (Dec. 17, 2014) at 2-3. Crosstown further argues that the VA’s decision to restrict its market research to Minnesota, despite not limiting the competition to Minnesota-based concerns, was unreasonable and an improper attempt to avoid setting aside the RFP exclusively for SDVOSB concerns. See Comments (Jan. 20, 2015) at 1. We find no basis to sustain the protest.

Under the Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. § 8127, and the VA’s implementing regulations, VA Acquisition Regulation Supplement (VAAR), 48 C.F.R. §§ 819.7004, 819.7005, the VA is required to set aside acquisitions for SDVOSBs whenever it determines that there is a reasonable expectation that offers will be received from at least two SDVOSB concerns and that award can be made at a fair and reasonable price. 38 U.S.C. § 8127(d); VAAR § 819.7005. The determination as to whether there is a reasonable expectation of receiving offers from two or more SDVOSB concerns that are capable of performing the required work is a matter of informed business judgment within the CO’s discretion that we will not disturb absent a showing that it was unreasonable. Crosstown Courier Serv., Inc., B-407404, Nov. 30, 2012, 2012 CPD ¶ 333 at 3; Buy Rite Transport, B-403729, B-403768, Oct. 15, 2010, 2010 CPD ¶ 245 at 3. The requirements of the 2006 Act do not dictate the use of any particular methodology in assessing the availability of SDVOSB concerns to perform a requirement; measures such as prior procurement history, market surveys, advice from the agency’s small business specialist, and information concerning prospective offerors’ business history and capability or capacity may all provide a reasonable basis for a decision to set aside, or not set aside, a requirement for SDVOSBs. Crosstown Courier Serv., Inc., supra, at 3; FlowSense, LLC, B-310904, Mar. 10, 2008, 2008 CPD ¶ 56 at 3.

Here, we find the CO’s market research and resulting set-aside decision were reasonable. The contractor will be required to provide labor, equipment, and transportation services each weekday for pick-up and delivery between the MVAHCS in Minneapolis and 10 CBOCs located throughout Minnesota and western Wisconsin. RFP at 11, 19-28. As detailed above, the CO’s market research here included searches for Minnesota-based SDVOSB courier service vendors in VA, SBA, and GSA databases. Those searches identified only one Minnesota-based SDVOSB courier service vendor. See AR, Tab 4, Market Research Report, at 1-2; Tab 5, Minnesota Market Research. The CO also considered the procurement history for the incumbent, small business set-aside contract. See AR, Tab 4, Market Research, at 2. The agency explains that it did not set aside the solicitation for the incumbent contract, or a similar procurement for courier services in Iowa, for SDVOSB concerns because the pricing received from SDVOSB concerns in response to those solicitations exceeded the independent government estimate by an average of 212% and 163%, respectively. See AR, Tab 9, VA Decision on Agency-Level Protests of RFP Nos. VA-263-09-RP-0292 and VA-263-09-RP-0293 (Sept. 22, 2009), at 1. Additionally, the VA was concerned that awarding the contract to a SDVOSB concern not located in Minnesota could result in excessive subcontracting in violation of the limitation on subcontracting provisions at FAR clause 52.219‑27(d) and VAAR clause 852.219-10(c). See AR at 4. Under these circumstances, we find the VA’s market research and set-aside determination to be reasonable. See Crosstown Courier Serv., Inc., supra, at 3 (denying protest challenging a determination not to set aside a procurement for similar VA courier services for SDVOSB concerns based on market research limited to the states where the majority of work would be performed).  (Crosstown Courier Service, Inc. B-410936: Mar 12, 2015)  (pdf)


Under FAR § 19.502-2(b), a procurement with an anticipated dollar value of more than $150,000, such as the one here, must be set aside for exclusive small business participation when there is a reasonable expectation that offers will be received from at least two responsible small business concerns and that award will be made at fair market prices. No particular method of assessing the availability of capable small businesses is required; rather, the assessment must be based on sufficient facts so as to establish its reasonableness. Mountain West Helicopters, LLC; Trans Aero, Ltd., B-408150, B-408150.2, July 1, 2013, 2013 CPD ¶ 152 at 3. The decision whether to set aside a procurement may be based on an analysis of factors such as the prior procurement history, the recommendations of appropriate small business specialists, and market surveys that include responses to sources sought announcements. Commonwealth Home Health Care, Inc., B‑400163, July 24, 2008, 2008 CPD ¶ 140 at 3. In making set-aside decisions, agencies need not make actual determinations of responsibility or decisions tantamount to determinations of responsibility; rather, they need only make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract. Ceradyne, Inc., B-402281, Feb. 17, 2010, 2010 CPD ¶ 70 at 4.

Because a decision whether to set aside a procurement is a matter of business judgment within the contracting officer’s discretion, our review generally is limited to ascertaining whether that official abused his or her discretion. Information Ventures, Inc., B-400604, Dec. 22, 2008, 2008 CPD ¶ 232 at 3; ViroMed Labs., B‑298931, Dec. 20, 2006, 2007 CPD ¶ 4 at 3-4; Information Ventures, Inc., B‑279924, Aug. 7, 1998, 98-2 CPD ¶ 37 at 3. We will not question an agency’s small business determination where the record shows that the evidence before the contracting officer was adequate to support the reasonableness of the conclusion that small business competition reasonably could be expected. Commonwealth Home Health Care, Inc., supra, at 3.

Here, the agency’s set-aside determination is unobjectionable. The record, as described above, shows that the Air Force conducted ample market research in connection with its decision to set aside the acquisition for SDVOSB, including: (1) issuing a sources sought notice and questionnaire; (2) identifying potential small business offerors using available government contractor databases; (3) surveying those businesses regarding their socioeconomic status; and (4) contacting contracting officials at other Air Force bases to discuss recently conducted procurements for similar aircraft services. We agree with the agency that this market research is consistent with the requirements of the FAR, and we find no basis to sustain Starlight’s protest that the agency unreasonably set aside the procurement for SDVOSBs.

Significantly, Starlight concedes that two SDVOSB firms have experience servicing C-5 aircraft. Comments at 3. To the extent that the protester contends that these SDVOSB firms may have limited experience, we find that the protester has not persuasively rebutted the agency’s argument that the services being procured are not complex, do not involve specialized tasks, or otherwise require highly skilled labor, unique qualifications, or certifications. Moreover, we are not persuaded by the protester that it was unreasonable for the Air Force to consider experience providing services to C‑17, C-130, KC-135, and KC‑10 aircraft relevant to providing similar services to C-5 aircraft, and we disagree with the protester that the agency misled offerors in that regard.

The protest is denied.  (Starlight Corporation, Inc., B-410471.2: Dec 30, 2014)  (pdf)


The protesters contend that the RFP should have been set aside for SDVOSBs, citing the Veterans Benefits, Health Care and Information Technology Act of 2006, 38 U.S.C. § 8127, and VA’s implementing regulations. The protesters argue that, had the agency issued a sources-sought notice, it would have discovered that at least two SDVOSBs were interested in competing.

The VA responds that, pursuant to the specific authority accorded the agency in 38 U.S.C. § 8123, it was not required to set aside a procurement of prosthetic appliances for SDVOSBs. AR at 3-4. Section 8123 of Title 38 provides:

The Secretary may procure prosthetic appliances and necessary services required in the fitting, supplying, and training and use of prosthetic appliances by purchase, manufacture, contract, or in such other manner as the Secretary may determine to be proper, without regard to any other provision of law.

38 U.S.C. § 8123. The VA asserts that the statute reflects the intent of Congress to give the VA as much flexibility as possible in procuring prosthetic appliances, which are uniquely sensitive and personal to the needs of the individual veteran.

The VA states that, moreover, while this specific authority exempts this procurement from any set-aside requirements, the VA’s decision not to set-aside the procurement for SDVOSBs was also supported by the agency’s conclusion that it did not have a reasonable expectation of receiving fair market offers from at least two SDVOSBs. AR, Tab 2, Market Research Report, at 1.

We agree with the VA that 38 U.S.C. § 8123 allows the agency to procure prosthetic appliances and services without considering whether to set aside the procurements for SDVOSBs. Although the protesters characterize the VA’s citation to this authority as an “after-the-fact justification of its improper procurement planning,” see Comments at 3, the contemporaneous record contains numerous citations to this authority. See, e.g., RFP Amend. 1, at 5; AR, Tab 2, Market Research Report, at 4; AR, Tab 4, Pre‑solicitation Notice, at 2. For the same reason, we also find no merit to the protester’s contention that the VA violated VA Acquisition Regulation § 806.302-5 (directing the contracting officer to cite 38 U.S.C. § 8123 and 41 U.S.C. § 253(c)(5) as authority when awarding a contract for orthopedic and prosthetic appliances and related services without providing full and open competition).

In any event, the record indicates that the VA considered whether there was a reasonable expectation of receiving offers from at least two SDVOSBs for these requirements and concluded that there was not such a reasonable expectation. As stated above, the VA noted from its experience procuring these goods and services that it did not receive offers from any SDVOSBs over the past 10 years. Although the protesters disagree with the VA’s judgment in this regard, they have not shown it to be unreasonable, or to violate applicable procurement laws or regulations.  (Charlie Mike Prosthetics; Half Milers Rule, LLC, B-409389, B-409389.2: Mar 10, 2014)  (pdf)


Kingdomware Technologies, of Waldorf, Maryland, a service-disabled veteran-owned small business (SDVOSB), requests reconsideration of our decision in Kingdomware Technologies, B-407232, Sept. 17, 2012, in which we dismissed a protest challenging the award of task order No. VA255P657SC1615, and the exercise of an option under that task order, by the Department of Veterans Affairs (VA) to LiveProcess, Inc., of Madison, New Jersey, under that firm’s Federal Supply Schedule (FSS) contract.

We dismiss the request because, as discussed below, our Office will no longer consider protests concerning the contention that the Veterans Benefits, Health Care, and Information Technology Act of 2006 (2006 VA Act), 38 U.S.C. §§ 8127-28 (2006), requires the VA to consider setting aside a procurement for SDVOSBs, or veteran-owned small businesses (VOSB), before procuring its requirements under the FSS.

On August 1, 2011, the VA issued the task order on a sole-source basis under LiveProcess’ FSS contract. The VA posted information concerning the task order on the Federal Procurement Data System (FPDS) website the same day. One year later, on August 1, 2012, the VA exercised an option to extend the task order, and posted the information on FPDS on August 2. The VA did not post the task order award or exercise of the option on the Federal Business Opportunities (FedBizOpps) website. On August 18, Kingdomware became aware of the information on FPDS, and on August 27 protested to our Office both the 2011 award, and the 2012 exercise of the option.

Kingdomware argued that the VA’s award of the initial task order, and its exercise of the task order option one year later, did not comply with the requirements of the 2006 VA Act. Kingdomware cited our Office’s decision in Aldevra, B-405271, B-405524, Oct. 11, 2011, 2011 CPD ¶ 183, where we held that the plain meaning of 38 U.S.C. § 8127(d) requires the VA to conduct market research concerning its requirements and determine whether there are two or more SDVOSBs (or VOSBs) capable of performing the requirements, and if so, to set the requirement aside exclusively for SDVOSB (or VOSB) concerns. Specifically, our Office held in Aldevra that the VA must consider whether to set aside the procurement for SDVOSBs (or VOSBs) prior to conducting a procurement on an unrestricted basis under the FSS.

On September 17, our Office dismissed Kingdomware’s protest. We dismissed the challenge to the underlying task order award and failure to post the award on the FedBizOpps website, concluding that, given passage of more than one year since the award of the order, “no useful purpose is served by our considering a protest of the action.” Kingdomware Techs., supra, at 2. We also dismissed the challenge to the exercise of the option on the task order because our Office will generally not question an agency’s exercise of an option contained in an existing contract, unless the protester shows that the agency failed to follow applicable regulations, or the agency’s determination to exercise the option, rather than conduct a new procurement, was unreasonable. Id. at 2-3.

Kingdomware requests reconsideration of our decision. This request is based, at its core, on a contention that the 2006 VA Act requires the VA to consider a set-aside for SDVOSBs (or VOSBs) prior to conducting an unrestricted procurement under the FSS. Recent actions by the VA and the U.S. Court of Federal Claims lead our Office to conclude that we should not continue hearing protests that rely solely on this contention.

In response to our Office’s decision in Aldevra and other decisions regarding the 2006 VA Act,[2] the VA has advised that it will not follow our recommendations concerning our interpretation of the 2006 VA Act. See GAO Annual Report to Congress for Fiscal Year 2012, at 1, available at: http://www.gao.gov/products/GAO-13-162SP. Additionally, on November 27, the U.S. Court of Federal Claims issued a decision which disagreed with our Office’s interpretation of the 2006 VA Act. Kingdomware Techs., Inc. v. United States, No. 12-173C (Fed. Cl., Nov. 27, 2012). The court held that the VA’s interpretation of the 2006 VA Act and its regulations, which permit the VA to place orders on the FSS without first considering whether to set aside a requirement for SDVOSB (or VOSB) firms, was entitled to deference. Id. at 34, 35.

While this Office has set forth its view of the 2006 VA Act in Aldevra and its progeny, as well as in testimony before the Congress,[3] the VA has elected not to follow our recommendations. In addition, the court has reached a different conclusion about the meaning of the 2006 VA Act. Although our Office is not bound by the court’s decisions, its decision in Kingdomware, together with the VA’s position on the meaning of this statute, effectively means that protesters who continue to pursue these arguments will be unable to obtain meaningful relief. Consequently, under these circumstances, we will no longer consider protests based only on the argument that the VA must consider setting aside procurements for SDVOSBs (or VOSBs) before conducting an unrestricted procurement under the FSS.

The request for reconsideration is dismissed.  (Kingdomware Technologies--Reconsideration, B-407232.2, Dec 13, 2012)  (pdf)
 


CCS raises a number of arguments challenging the VA’s determination to set aside the procurement for small businesses rather than for SDVOSBs. We have considered all of the protester’s arguments and find that none provide a basis to object to the VA's decision to set aside the RFP for small businesses. This decision addresses CCS’s primary arguments.

CCS asserts that the VA failed to perform sufficient market research to ascertain the interest and capability of SDVOSBs to perform the requirement. Specifically, the protester notes that there are at least two capable SDVOSB firms: CCS which is performing a VA courier contract in Montana, administered by the same contracting officer, and another SDVOSB courier firm, Medical Logistics, which is located in Utah. Given these two firms, CCS concludes that the contracting officer abused her discretion in failing to set the procurement aside.

Under the Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. §8127, and the VA's implementing regulations, VA Acquisition Regulation (VAAR) §§ 819.7004, 819.7705, the VA is required to set aside acquisitions for SDVOSBs whenever it determines that there is a reasonable expectation that offers will be received from at least two SDVOSB firms and that award can be made at a fair and reasonable price. 38 U.S.C. § 8127(d); VAAR § 819.7005. The determination as to whether there is a reasonable expectation of receiving offers from two or more SDVOSB firms that are capable of performing the required work is a matter of informed business judgment within the contracting officer's discretion that we will not disturb absent a showing that it was unreasonable. Buy Rite Transport, B-403729, B-403768, Oct. 15, 2010, 2010 CPD ¶ 245 at 3. The requirements of the 2006 VA Act do not dictate the use of any particular methodology in assessing the availability of SDVOSB firms to perform a requirement; measures such as prior procurement history, market surveys, advice from the agency’s small business specialist, and information concerning prospective offerors’ business history and capability or capacity may all provide a reasonable basis for a decision to set aside, or not set aside, a requirement for SDVOSBs. FlowSense, LLC, B-310904, Mar. 10, 2008, 2008 CPD ¶ 56 at 3.

The contracting officer’s market research and resulting set-aside determination were reasonable. In this regard, the statements of work for the two regions required the successful contractor to provide labor, equipment, and transportation services each week-day for pick-up and delivery between the VASLCHCS in Salt Lake City, Utah and four VA clinics each in the northern and/or southern regions (covering Utah, Idaho, and Nevada). RFP at 7-9. While the RFP did not restrict competition to firms located in this geographical area, there was nothing unreasonable in the contracting officer’s market research focusing on that area and the likelihood of whether firms from outside it would respond to the RFP. See American Connecting Source d/b/a Connections, B-276889, July 1, 1997, 97-2 CPD ¶ 1 at 3 (agencies may properly restrict procurements to offerors within a specified geographical area if the restriction is reasonably necessary for the agency to meet its minimum needs).

Here, using the NAICS code for courier services (No. 492110), the contracting officer searched both the VIP and CCR databases to identify available firms. While the CCR database identified hundreds of VOSB and SDVOSB firms, none of them were located in the states of Utah or Idaho where the majority of the courier work is to be performed. Likewise, of the more than 50 (courier) SDVOSBs found in the VIP database, the contracting officer ultimately found none that were located in Utah or Idaho. Although she initially found one such firm located in Utah, her subsequent search found that the firm was no longer listed, and the firm identified by CCS in its protest is no longer listed in VIP. [2] Neither of these firms would be eligible for award under an SDVOSB set-aside. As for CCS, while it is an SDVOSB, it is currently performing its VA courier contract in Montana, not in the states encompassed by this procurement. In any case, even if the VA had considered CCS’s interest, the firm represents only one SDVOSB and the protester has not identified any other VIP-eligible SDVOSB that would be interested in competing for this requirement. Given the large geographical area and the daily nature of the work covered by the RFP, the contracting officer reasonably concluded that there was no expectation that two or more SDVOSBs from outside this area would respond to the solicitation. Contracting Officer’s Statement at 4.  (Crosstown Courier Service, Inc., B-407404, Nov 30, 2012)  (pdf)
 


Phoenix complains that the agency issued the purchase order to a small business concern, where there are two or more SDVOSB concerns that could provide the fertilizer to the agency, and without soliciting the protester despite the fact that the very purchasing agent involved knew of Phoenix’s interest in fertilizer acquisitions.

As an initial matter, the VA argues that Phoenix is not an interested party, because it did not submit a quotation. We disagree that Phoenix is not an interested party to challenge the agency's actions. Under the Competition in Contracting Act of 1984, 31 U.S.C. §§ 3551- 56 (2006) and our Bid Protest Regulations, 4 C.F.R. § 21.0(a)(1) (2012), only an “interested party” may protest a federal procurement. That is, a protester must be an actual or prospective bidder or offeror whose direct economic interest would be affected by the award of a contract or the failure to award a contract. Here, Phoenix is challenging the agency’s failure to solicit Phoenix for the order, and the agency’s improper issuance of the order to a small business concern where there were other SDVOSB concerns, including Phoenix, that could satisfy this requirement. Under these circumstances, Phoenix is a prospective offeror whose direct economic interest is affected by the issuance of the order to Golf Enviro.

VA also argues that it satisfied the competition requirements of Federal Acquisition Regulation (FAR) § 13.104(b) for simplified acquisitions where it solicited quotations from three SDVOSB concerns. In using simplified acquisition procedures, agencies are required to obtain competition to the maximum extent practicable. See FAR § 13.104. Where, as here, such procedures are used and notice is not to be provided through the FedBizOpps website, the FAR states that

maximum practicable competition ordinarily can be obtained by soliciting quotations or offers from sources within the local trade area. Unless the contract action requires synopsis pursuant to 5.101 and an exception under 5.202 is not applicable, consider solicitation of at least three sources to promote competition to the maximum extent practicable. Whenever practicable, request quotations or offers from two sources not included in the previous solicitation.

FAR § 13.104(b).

Although we agree that the purchasing agent’s solicitation of three SDVOSBs generally satisfied the competition requirements of FAR Part 13, the agency fails to recognize Phoenix’s complaint that the acquisition was required to be set aside for SDVOSBs and the fertilizer acquired from an SDVOSB concern. We have previously sustained protests filed with respect to VA procurements, where, as here, the protesters alleged that the VA failed to comply with requirements of the VA Act and its implementing regulations. See, e.g., Aldevra, B-405271, B-405524, Oct. 11, 2011, 2011 CPD ¶ 183. We noted in those decisions that the VA Act in relevant part, 38 U.S.C. § 8127(d), provides as follows:

[A] contracting officer of [the VA] shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.

The VA issued regulations implementing the VA Act which, as relevant here, state as follows:

(a) The contracting officer shall consider SDVOSB set-asides before considering VOSB set-asides. Except as authorized by 813.106, 819.7007 and 819.7008, the contracting officer shall set aside an acquisition for competition restricted to SDVOSB concerns upon a reasonable expectation that:

(1) Offers will be received from two or more eligible SDVOSB concerns; and

(2) Award will be made at a fair and reasonable price.

Veterans Administration Acquisition Regulation, 48 C.F.R. § 819.7005(a) (2012).

Here, it is not disputed that the purchasing agent, in searching for SDVOSB concerns to supply the fertilizer for the Santa Fe National Cemetery, found a number of SDVOSB concerns, including the protester. In addition, the agency does not contend that it had no reasonable expectation of receiving two or more offers from SDVOSB concerns at a fair and reasonable price. There also is no analysis in the record supporting such a conclusion. Moreover, in this regard, Phoenix, which was not solicited, has previously received an order from the same purchasing agent to provide fertilizer for other VA national cemeteries. We see no basis on this record to conclude that the fertilizer for the Santa Fe National Cemetery could not be procured from an SDVOSB concern.

The agency’s only explanation as to why it chose to procure the fertilizer from a non-SDVOSB concern is that it had already complied with the requirement to solicit three sources in accordance with FAR § 13.104(b). This explanation, however, reflects a fundamental misunderstanding of the agency’s obligations under the VA Act. While an agency is only required to obtain competition to the maximum extent practicable in a simplified acquisition under FAR Part 13, this does not relieve the VA of its obligation to comply with the requirements of the VA Act and its own implementing regulations.

Specifically, absent a reasonable determination that the agency could not expect to receive quotations from two or more SDVOSB concerns at a fair and reasonable price, the VA was required to continue to conduct this procurement as a set-aside for SDVOSB concerns. See Kingdomware Techs., B-406507, May 30, 2012, 2012 CPD ¶ 165 at 2 (“the plain language of the VA Act mandates that the VA ‘shall’ conduct its procurements . . . using an SDVOSB set-aside when there is a reasonable expectation that two or more SDVOSB concerns can meet its requirements at a reasonable price.”) The VA decided not to solicit any of the other SDVOSB concerns identified by the purchasing agent, and instead issued this order to a non-veteran-owned small business. Accordingly, we find that the agency violated the VA Act and its own implementing regulations when it issued this order to Golf Enviro.  (Phoenix Environmental Design Inc., B-407104, Oct 26, 2012)  (pdf)


The procurements are being conducted pursuant to General Services Administration Federal Supply Schedule (FSS) procedures and implementing regulations, set forth at Federal Acquisition Regulation (FAR) subpart 8.4. In accordance with those regulations, the solicitations were issued on an unrestricted basis to vendors holding FSS contracts.

Aldevra asserts that the VA acted improperly by using FSS procedures without first conducting market research to determine whether the procurements should be set aside for SDVOSB (or VOSB) concerns. Aldevra maintains that if the agency had conducted market research, it would have found that at least two SDVOSBs could meet the requirements at a reasonable price. The agency concedes that it did not conduct market research to determine whether two or more SDVOSB (or VOSB) concerns could meet the requirements at a reasonable price. Agency E-Mail, Aug. 2, 2012.

Previously, we sustained protests filed by Aldevra against VA procurements being conducted pursuant to FSS procedures in which, like here, the protester asserted that the agency failed to comply with the requirements of the VA Act and its implementing regulations. Aldevra, B-406205, Mar. 14, 2012, 2012 CPD ¶ 112; Aldevra, B-405271, B-405524, Oct. 11, 2011, 2011 CPD ¶ 183. The issue raised and the agency’s arguments in those Aldevra protests are the same as the issue and the arguments presented here.

For the same reasons that we discussed at length in our recent decisions, we reject the VA’s arguments in the current protests. Here, as in the previous Aldevra protests, the VA has not conducted market research to determine if there are two or more eligible SDVOSB (or VOSB) concerns capable of performing the agency’s requirements. Consistent with our recent decisions, we conclude that the 2006 VA Act requires that the agency make a determination whether these acquisitions should be set aside for SDVOSB (or VOSB) concerns prior to conducting the procurements using FSS procedures. We therefore sustain Aldevra’s protests.  (Aldevra, B-406774; B-406857; B-406892; B-406912; B-406913; B-406927; B-406928; B-406942, August 21, 2012)  (pdf)
 


The procurements are being conducted pursuant to General Services Administration Federal Supply Schedule (FSS) procedures and implementing regulations, set forth at Federal Acquisition Regulation (FAR) subpart 8.4. In accordance with those regulations, the solicitations were issued on an unrestricted basis to vendors holding FSS contracts.

Aldevra asserts that the VA acted improperly by using FSS procedures without first conducting market research to determine whether the procurements should be set aside for SDVOSB (or VOSB) concerns. Aldevra maintains that if the agency had conducted market research, it would have found that at least two SDVOSBs could meet the requirements under each solicitation at a reasonable price. The agency concedes that it did not conduct market research to determine whether two or more SDVOSBs (or VOSBs) could meet the requirements under any of the solicitations at a reasonable price. Agency E-Mail, June 12, 2012, at 1.

Previously, we sustained protests filed by Aldevra against VA procurements being conducted pursuant to FSS procedures in which, like here, the protester asserted that the agency failed to comply with the requirements of the VA Act and its implementing regulations. Aldevra, B-406205, Mar. 14, 2012, 2012 CPD ¶ 112; Aldevra, B-405271, B-405524, Oct. 11, 2011, 2011 CPD ¶ 183. The issue raised and the agency’s arguments in the recent Aldevra protests are the same as the issue and arguments presented here.

For the same reasons that we discussed at length in our recent decisions, we reject the VA’s arguments in the current protests. Here, as in the previous Aldevra protests, the VA has not conducted market research to determine if there are two or more eligible SDVOSB (or VOSB) concerns capable of performing the agency’s requirements. Consistent with our recent decisions, we conclude that the 2006 VA Act requires that the agency make a determination whether these acquisitions should be set aside for SDVOSB (or VOSB) concerns prior to conducting the procurements using FSS procedures. We therefore sustain Aldevra’s protests.  (Aldevra, B-406608, B-406654, B-406655, B-406656, Jul 13, 2012)  (pdf)


This procurement was conducted pursuant to General Services Administration Federal Supply Schedule (FSS) procedures, set forth at Federal Acquisition Regulation (FAR) subpart 8.4. Kingdomware asserts that the VA acted improperly by using non-mandatory FSS procedures and awarding a contract to a non-SDVOSB company, rather than setting aside the procurement for SDVOSB concerns. Kingdomware further asserts that the agency’s own market research established that there were “at least 20 SDVOSB [concerns]” (including Kingdomware) that hold FSS contracts for the acquired services; yet, the agency awarded the contract to a non-SDVOSB concern.

The VA has responded to Kingdomware’s protest by repeating arguments it has previously made in connection with a prior protest regarding SDVOSB concerns. See Aldevra, B-406205, Mar. 14, 2012, 2012 CPD ¶ 112. In that decision we sustained a protest challenging the VA’s actions with regard to an FSS procurement in which, as here, the protester asserted that the agency failed to comply with the requirements of the VA Act and its implementing regulations.

Specifically, in Aldevra, we noted that the VA Act provides that:

. . . a contracting officer of [the VA] shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.

38 U.S.C. § 8127(d) (2006).

There, as here, the VA argued that, notwithstanding the VA Act, the agency need not consider SDVOSB and VOSB set-asides prior to determining whether to purchase goods or services through the FSS program. We disagreed on the basis that the plain language of the VA Act mandates that the VA “shall” conduct its procurements, including FSS acquisitions, using an SDVOSB set-aside when there is a reasonable expectation that two or more SDVOSB concerns can meet its requirements at a reasonable price. Aldevra, supra, at 5.

Here, the VA asserts that it “finds no legal question at issue in this protest other than [Kingdomware’s] contention that VA is required to perform market research and conduct SDVOSB set-asides . . . prior to considering use of the FSS.” Agency Report, Apr. 12, 2012, at 2. As it has previously, the VA maintains that FSS acquisitions “[are not] impacted by VA’s SDVOSB/VOSB authority.” Id. Further, the VA does not dispute Kingdomware’s assertion that the VA, in fact, conducted market research in connection with this procurement and found that there were at least 20 SDVOSBs that could perform the requirements at issue. Rather, the VA asserts that

“it is irrelevant whether VA conducted market research to determine whether two or more small businesses of any type were capable of bidding on the requirement” maintaining that SDVOSB set-asides are discretionary under any FSS acquisition. Id.

For the same reasons we discussed at length in Aldevra, we reject the VA’s arguments. In addition, it appears that, here, the agency conducted market research prior to the acquisition and found that at least 20 SDVOSB concerns were capable of meeting the requirements at issue. Specifically, in an email to Kingdomware dated March 12, 2012, the agency stated the FSS schedule under which this procurement was conducted “includes 541 vendors,” and acknowledged that “20 of those are SDVOSBs.” Protest, Tab 4, Email from Contract Specialist to Kingdomware, Mar. 12, 2012.

Consistent with our decision in Aldevra, supra, we conclude that the VA Act required the agency to consider whether this acquisition should have been set aside for SDVOSB (or VOSB) concerns. Further, on the record presented, it appears that such set-aside should have occurred. Accordingly, we sustain Kingdomware’s protest.  (Kingdomware Technologies, B-406507, May 30, 2012)  (pdf)


Crosstown argues that the agency improperly issued the solicitation under the FSS (and intends to award a task order to an FSS vendor) rather than as an open market acquisition reserved for SDVOSBs. Crosstown maintains that the agency erred in not first conducting market research to determine whether there were two or more SDVOSB (or veteran owned small business (VSOB)) concerns that could meet the agency’s requirement at a fair and reasonable price that offers best value to the government. Crosstown contends that, had the agency conducted adequate market research, it would have found at least two SDVOSB concerns that could meet the agency’s requirements. In support of its position, Crosstown directs our attention to 38 U.S.C. § 8127(d), which embodies the market research and “rule of two” set-aside requirements relied upon by Crosstown. Crosstown further asserts that, inasmuch as the VA received only one quote under its FSS solicitation, its proposed issuance of a task order to MLS amounts to an improper sole source contract award, and the agency has no assurance that it will make the award at a fair and reasonable price, or that the award will represent the best value to the agency, as required by 38 U.S.C. § 8127(d).

The VA responds by repeating arguments it has made to our Office in answer to prior protests filed by another SDVOSB concern, Aldevra. Aldevra, B-405271, B-405524, Oct. 11, 2011, 2011 CPD ¶ 183; Aldevra, B-406205, Mar. 14, 2012, 2012 CPD ¶ 112. In essence, the VA argues that the VA Act presents no bar to the agency’s ability to proceed directly to the FSS to purchase goods or services listed on that schedule without regard to the SDVOSB status of the vendor. We have addressed these arguments and found them to be without merit. Id. Nonetheless, we conclude that Crosstown cannot claim a prejudicial violation of statute or regulation, as it appears that VA has statutory authority for its actions here, despite the agency’s failure to claim during the protest that it acted using this authority.

As an initial matter, we point out that nothing in the statutory authority relied on by Crosstown, 38 U.S.C. § 8127(d), requires the VA to conduct its market research exclusively on the open market, as opposed to among FSS vendors. The statute provides:

Except as provided in subsections (b) and (c), for purposes of meeting the goals under subsection (a), and in accordance with this section, a contracting officer of the [VA] shall award contracts on the basis of competition restricted to . . . [VOSBs or SDVOSBs] if the contracting officer has a reasonable expectation that two or more . . . [VOSBs or SDVOSBs] will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.

38 U.S.C. § 8127(d). Thus, the agency’s initial decision to conduct market research confined to FSS vendors was not, in and of itself, objectionable, to the extent that the VA sought to determine whether there were two or more SDVOSB (or VOSB) FSS vendors capable of meeting its requirement.

As noted, however, the agency received an expression of interest from only one concern. Accordingly, the agency had no reasonable expectation of receiving proposals or quotes from at least two FSS SDVOSB (or VOSB) vendors, nor was there a basis for the agency to conclude from its market research that it would be able to make award at a fair and reasonable price. It follows that the agency could not properly set aside this acquisition under the FSS pursuant to the authority provided by 38 U.S.C. § 8127(d).

Even though we conclude that the agency could not have set aside the acquisition under the FSS using the authority under 38 U.S.C. § 8127(d), the VA Act permits the agency properly to have confined its acquisition to MLS. Rather than the provision at 38 U.S.C. § 8127(d), the provision at 38 U.S.C. § 8127(b) is pertinent here and it provides:

(b) Use of noncompetitive procedures for certain small contracts.--For purposes of meeting the goals under subsection (a), and in accordance with this section, in entering into a contract with a . . . [SDVOSB or VOSB] for an amount less than the simplified acquisition threshold (as defined in section 134 of title 41), a contracting officer of the Department may use procedures other than competitive procedures.

As noted above, the value of the requirement at issue here is $9,990, which is well below the simplified acquisition threshold. The VA therefore has authority to use “other than competitive procedures” to award to SDVOSB (or VOSB) vendors, which is what it has done here.

We conclude that the agency’s acquisition here amounted to the solicitation and award of a requirement using “other than competitive procedures” as authorized by 38 U.S.C. § 8127(b). Moreover, under 38 U.S.C. §8127(b), there is no requirement for the VA to conduct market research of any sort, so long as the value of the procurement is below the simplified acquisition threshold and award is made to an SDVOSB (or VOSB).  (Crosstown Courier Service, Inc., B-406336, Apr 23, 2012)  (pdf)


The procurements are being conducted pursuant to General Services Administration Federal Supply Schedule (FSS) procedures and implementing regulations, set forth at Federal Acquisition Regulation (FAR) subpart 8.4. In accordance with those regulations, the solicitations were issued on an unrestricted basis to vendors holding FSS contracts.

Aldevra asserts that the VA acted improperly by using FSS procedures without first conducting market research to determine whether the procurements should be set aside for SDVOSB (or VOSB) concerns. Aldevra maintains that if the agency had conducted market research, it would have found that at least two SDVOSBs could meet the requirements at a reasonable price. The agency concedes that it did not conduct market research to determine whether two or more SDVOSB (or VOSB) concerns could meet the requirements at a reasonable price.

In March, we sustained a protest filed by Aldevra against a VA procurement being conducted pursuant to FSS procedures in which, like here, the protester asserted that the agency failed to comply with the requirements of the [Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. §§ 8127-8128 (2006)] VA Act and its implementing regulations. Aldevra, B-406205, Mar. 14, 2012, CPD ¶ 112. The issue raised and the agency’s arguments in the recent Aldevra protest are the same as the issue and arguments presented here.

For the same reasons that we discussed at length in our recent decision, we reject the VA’s arguments in the current protests. Here, as in Aldevra, supra, the VA has not conducted market research to determine if there are two or more eligible SDVOSB (or VOSB) concerns capable of performing the agency’s requirements. Consistent with our recent decision, we conclude that the 2006 VA Act requires that the agency make a determination whether these acquisitions should be set aside for SDVOSB (or VOSB) concerns prior to conducting the procurements using FSS procedures. We therefore sustain Aldevra’s protest.  (Aldevra, B-406331, B-406391, Apr 23, 2012)  (pdf)


The protester maintains that there are no SDVOSBs that can meet the terms of the solicitation which requires, among other things, for the successful contractor to maintain documentation that it meets all requirements of federal, state, county or city codes regarding the operation of wheelchair/stretcher transportation service vehicles. RFP at 10. More specifically, the RFP requires that the successful contractor must be licensed to perform the contemplated services in Hillsborough County, Florida, by the Hillsborough County Public Transportation Commission (HCPTC). Id. According to the protester, none of the prospective SDVOSB offerors is licensed to perform the services by the HCPTC.

We find no merit to the protest. The VA Act, by its terms, requires that the contracting activity set aside acquisitions for SDVOSBs where it has a reasonable expectation that there are at least two such concerns that will submit offers, and that award can be made at a fair and reasonable price. 38 U.S.C. § 8127(d).

Here, the record shows that the agency conducted market research in connection with its decision to set aside this acquisition. Specifically, the agency issued a sources sought request for information. The agency received 12 responses to its request for information. Of the 12 responses, three were from verified SDVOSBs, three were from registered, but as yet not verified SDVOSBs, one was from a verified veteran owned small business and the remainder were from small or large businesses not owned by veterans. Agency Report (AR), exh. 4. On the basis of this market research, the contracting officer concluded that there was a reasonable expectation that the agency would receive proposals from at least two SDVOSBs, and that prices submitted likely would be competitive. Id. The record thus shows that the contracting officer here acted in accordance with the requirements of the VA Act and, based on his market research, determined to set aside the acquisition for SDVOSBs. 38 U.S.C. § 8127(d).

The record further shows that, in response to the RFP, the agency received 5 proposals, two from verified SDVOSBs, one from a registered, but as yet not verified, SDVOSB, one from a verified veteran owned small business and one from a large business (the protester). AR, exh. 4. The results of the competition thus effectively validated the contracting officer’s initial expectation that the agency would receive at least two proposals from SDVOSBs.

As a final matter, we point out that general solicitation provisions of the type included here that require the “contractor” to obtain all necessary licenses or permits needed to perform the work do not require that a bidder or offeror demonstrate compliance prior to award. Chem-Spray-South, Inc., B-400928.2, June 25, 2009, 2009 CPD ¶ 144 at 5-6. Instead, the securing of licenses or permits is a performance requirement that may be satisfied during contract performance. Id. The issue of whether the successful contractor here ultimately obtains the licenses and permits is a matter of contract administration, which our Office does not review. See id.; 4 C.F.R. §21.5(a) (2011).  (American Medical Response, B-406274, Mar 16, 2012)  (pdf)
 


Kevcon makes numerous arguments challenging the VA’s determination that the agency did not have a reasonable expectation that it would receive offers from two or more SDVOSBs capable of performing the stated requirements. We have considered all of the protester’s arguments, although we only address the primary ones, and find that none provide a basis to object to the VA’s decision to set aside the RFP for small businesses.

Under the Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. § 8127, and the VA’s implementing regulations, VA Acquisition Regulation (VAAR) §§ 819.7004, 819.7705, the VA is required to set aside acquisitions for SDVOSBs whenever it determines that there is a reasonable expectation that offers will be received from at least two SDVOSB firms and that award can be made at a fair and reasonable price. 38 U.S.C. § 8127(d); VAAR § 819.7005. The determination as to whether there is a reasonable expectation of receiving offers from two or more SDVOSB firms that are capable of performing the required work is a matter of informed business judgment within the contracting officer’s discretion that we will not disturb absent a showing that it was unreasonable. Buy Rite Transport, B-403729, B-403768, Oct. 15, 2010, 2010 CPD ¶ 245 at 3. While the use of a particular method of assessing the availability of capable SDVOSB firms is not required, an analysis of factors such as the recommendations of appropriate small business specialists, market surveys that include responses to sources sought announcements, and prior procurement history, may all constitute adequate grounds for a contracting officer’s decision not to set aside a procurement. FlowSense, LLC, B-310904, Mar. 10, 2008, 2008 CPD ¶ 56 at 3. The assessment must be based on sufficient evidence to establish its reasonableness. See Rochester Optical Mfg. Co., B-292247, B-292247.2, Aug. 6, 2003, 2003 CPD ¶ 138 at 5.

Kevcon complains that the VA’s market research was flawed, because the agency’s emails to SDVOSBs to determine whether any were interested in performing this work was limited to firms conducting business in Washington, Oregon and/or Idaho. Kevcon contends, given the size of this procurement, that SDVOSBs outside this geographic area would be interested in this procurement. Comments at 4. There is no merit to this complaint. Although it is true that the VA emailed approximately 250 SDVOSBs within this tri-state area, this additional research followed the agency’s earlier posting of the requirement, without any geographic limitations, on FedBizOpps. As noted above, the agency only received expressions of interest from three SDVOSBs, only one of which (Kevcon) was capable of performing the work.

Although Kevcon has identified numerous SDVOSBs that it believes may be interested in performing this work, it has not demonstrated that the VA’s posting of a sources sought notice on FedBizOpps and other market research was inadequate. Also, apart from the two other SDVOSBs that Kevcon earlier identified to the agency (and which the VA found incapable of performing the work), Kevcon has not identified any SDVOSBs interested in performing this work.

With respect to the two SDVOSBs that responded to the sources sought notice and the other two SDVOSBs identified by Kevcon as interested in the procurement, Kevcon does not specifically argue that the agency unreasonably found that these firms could not perform this work. Rather, Kevcon complains that the agency’s judgment as to the capability of these firms to perform this work was essentially a responsibility determination. See Comments at 5-6. Although Kevcon suggests that the VA used an overly stringent standard in finding that these firms could not perform this work, it does not identify any specific part of the agency’s analysis that was unreasonable. Contrary to Kevcon’s arguments, the record shows that the VA’s judgment as to the capability of these firms was part of an informed business judgment that there was not a reasonable expectation of receiving offers from two or more SDVOSBs capable of performing the contract.  (Kevcon, Inc., B-406101, B-406101.2, B-406101.3, Feb 6, 2012)  (pdf)


Interpretation of the VA Act and the JWOD Act

ACE and PFM argue that the plain language of the [Veterans Benefits, Health Care, and Information Technology Act of 2006] VA Act requires the VA to consider setting aside these requirements for SDVOSB or VOSB concerns before considering any other mandatory preferences, such as that provided for AbilityOne organizations. ACE Protest (B-406291.2) at 3; PFM Protest (B-406291.1) at 2. The VA disagrees with the protesters’ assertion that the VA Act reaches the AbilityOne program. Rather, the VA contends that the VA Act is silent as to how the statute should operate with respect to the mandatory statutory preference created by the JWOD Act. See Hearing Transcript at 15-16.

Where, as here, the relationship between two statutes is at issue, the rule is to give effect to both if possible. United States v. Borden Co., 308 U.S. 188, 198 (1939). When two statutes are capable of co-existence, absent a clearly expressed congressional intention to the contrary, each must be regarded as effective. Morton v. Mancari, 417 U.S. 535, 551 (1974). Repeal by implication is strongly disfavored. Id., at 549; B-307720, Sept. 27, 2007.

The statutes at issue in this case unambiguously provide for mandatory contracting preferences. The JWOD Act provides that federal agencies shall procure items on the procurement list from an AbilityOne organization, absent certain circumstances not relevant here. See 41 U.S.C. § 8504. The VA Act provides that the VA must set aside procurements for SDVOSB or VOSB concerns if the contracting officer can expect at least two such concerns could meet the requirement at a reasonable price. 38 U.S.C. § 8127(d).

We find that the two statutes can be read so as not to conflict. In this regard, we agree with the VA that the VA Act does not expressly address the preference required by the JWOD Act. That is, the VA Act neither expressly overrides the JWOD preference nor provides that the preference for SDVOSB or VOSB concerns is subordinate to that of the AbilityOne program. Moreover, although the legislative history stresses the importance of the VA providing contracting opportunities for SDVOSB and VOSB concerns, the legislative history does not address the role of SDVOSB or VOSB contracting priorities in relation to the AbilityOne program.

Where Congress has explicitly left a gap to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute. Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44 (1984). Because the VA Act is silent with respect to the AbilityOne program, we look to the agency’s interpretation of the statute through its regulations.

The VA, however, did not explicitly address the relationship between the two statutes in its regulations. Rather, the agency addressed the AbilityOne preference in the preamble to the agency’s regulations implementing the VA Act and in its internal guidelines. As noted above, the VA stated in its preamble that the priority status of the AbilityOne program would not be impacted. See 74 Fed. Reg. 64,622. In its internal guidelines, the VA instructed contracting officers to give priority to SDVOSB or VOSB concerns for items not on the AbilityOne procurement list and before seeking to place an item on the list, but to give priority to AbilityOne organizations when seeking to purchase items that were already on the procurement list. See ACE Post-Hearing Comments, exhib. 8, VA Guidelines, Apr. 28, 2010, at 2.

We agree with the protesters that the VA’s preamble and internal guidance are not entitled to Chevron deference, given that neither construction reflects formal rulemaking or is a regulation. Nevertheless, this does not mean, as the protesters presume, that the agency’s construction of its statute, which the VA was entrusted to administer, is entitled to no deference. While the preamble of a regulation does not control the meaning of the regulation and is not entitled to the same level of deference, the preamble is evidence of an agency’s contemporaneous understanding of its rules. Wyoming Outdoor Council v. U.S. Forest Serv., 165 F.3d 43, 53 (D.C. Cir. 1999). Likewise, an agency’s internal guidelines, although not entitled to the same level of deference as regulations, nonetheless are “entitled to respect” to the extent that they are persuasive. Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944).

We find that the VA’s construction of the two statutes in its preamble and guidelines is entitled to Skidmore deference, which the protesters have not shown to be inconsistent with the statutes or unreasonable. In this regard, we disagree with the protesters’ contention that the VA’s construction of the statutes is unreasonable because it failed to give weight to the more recent and specific VA Act. ACE Comments (B-406291.2) at 2-3; PFM Comments (B-406291.1) at 4-5. However, a later, more specific statute only trumps an earlier general one where the two statutes are in conflict. See Morton v. Mancari, supra, at 550-51; NISH; RCI, Inc. v. Rumsfeld, 348 F.3d 1263, 1272 (10th Cir. 2003) (to the extent a conflict exists between two statutes, the more specific statute must control); Coalition for a Sustainable Delta v. McCamman, 725 F.Supp. 2d 1162, 1199 (2010).

This is consistent with the recent decision of the United States Court of Federal Claims in Angelica Textile Servs., Inc. v. U.S., 95 Fed. Cl. 208 (2010).[11] There, the court addressed the application of the VA Act to requirements that VA sought to fulfill by procuring from the AbilityOne program, without consideration of SDVOSB or VOSB concerns. The court found no real conflict between the VA Act and the JWOD Act and gave deference to the VA’s interpretation that the VA Act did not impact items already on the AbilityOne procurement list. See id. at 221-222. In this regard, the court gave a limited form of deference to the VA’s guidelines, concluding that:

The Department is responsible for implementing the Veterans Benefits Act; indeed, it is the only federal department or agency to which the Act’s requirements apply. The Department’s New Guidelines provide detailed instructions to “fill[] a space” between the Veterans Benefits Act and Javits-Wagner-O’Day Act and their accompanying regulations. . . . The New Guidelines reflect agency-wide policy and do not conflict with the Veterans Benefits Act, the Javits-Wagner-O’Day Act, or the VA Acquisition Regulations.

Id. at 222.

In short, we conclude, as did the court in Angelica, that the VA’s decision to give the AbilityOne program contracting priority for items already on the procurement list was not unreasonable in light of the statute’s silence regarding this issue. In reaching our conclusion, we give due deference, as did the Court of Federal Claims, to the agency’s guidelines. See id., citing U.S. v. Mead Corp., 533 U.S. 218, 229 (2001).  (Alternative Contracting Enterprises, LLC; Pierce First Medical, B-406265, B-406266, B-406291, B-406291.2, B-406318.1, B-406318.2, B-406343, B-406356, B-406357, B-406369, B-406371, B-406374, B-406400, B-406404, B-406428, Mar 26, 2012)  (pdf)


Encompass, which is not a SDVOSB concern, complains that the RFPs should not have been set aside for SDVOSB concerns. The protester contends that there are no SDVOSB concerns that can actually manufacture or assemble textiles in accordance with the solicitation requirements. Encompass also complains that the agency’s market survey did not adequately consider the application of the Buy American Act.

The Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. §§ 8127-8128 (2006), provides the VA with independent authority to set aside contracts for SDVOSB and Veteran-Owned Small Business (VOSB) concerns. The Act provides that SDVOSB firms receive first priority for VA contract awards, and that VOSB firms receive second priority. 38 U.S.C. § 8127(i). Further, under the Act, acquisitions must be set aside for SDVOSB firms if the VA determines that there is a reasonable expectation that offers will be received by at least two SDVOSB firms and that award can be made at a fair and reasonable price. 38 U.S.C. § 8127(d). Generally, a procurement set-aside determination is a business judgment within the contracting officer’s discretion, which we will not disturb absent a showing that it was unreasonable. Eagle Home Med. Corp.-Costs, B-299821.3, Feb. 4, 2008, 2008 CPD ¶ 41 at 2.

Here, Encompass does not show that the VA’s set-aside determination was unreasonable. As noted above, the agency conducted market research from which it determined that there were a number of SDVOSBs that appeared capable and interested in performing these requirements. The agency also determined that there were small business manufacturers from which the VA had obtained the solicited items in the past, and from which non-manufacturing SDVOSBs could obtain the items for sale to the VA. Although Encompass generally contends that the SDVOSBs will not be able to satisfy all of the solicitation requirements, we find that these general and speculative arguments do not show that the VA’s business judgment was unreasonable. Moreover, in this regard, we do not agree with the protester’s apparent belief that the VA was required to determine prospective offerors’ technical acceptability or responsibility in order to determine whether it was likely that it would receive offers from two or more SDVOSBs that appeared capable of performing and that award could be made at a fair and reasonable price.  (Encompass Group, LLC, B-406346, Mar 23, 2012)  (pdf)


This procurement is being conducted pursuant to General Services Administration Federal Supply Schedule (FSS) procedures and implementing regulations, set forth at Federal Acquisition Regulation (FAR) subpart 8.4. In accordance with those regulations, the solicitation was conducted as a discretionary small business set aside confined to small business vendors holding FSS contracts. FAR § 805-5.

Crosstown asserts that the VA acted improperly by using FSS procedures without first conducting market research to determine whether the procurement should be set aside for SDVOSB (or VOSB) concerns. Crosstown maintains that if the agency had conducted market research, it would have found that at least two SDVOSBs could meet the requirement at a reasonable price. The agency concedes that it did not conduct market research to determine whether two or more SDVOSB (or VOSB) concerns could meet the requirement at a reasonable price.

By decision dated March 14, 2012, Aldevra, B-406205, Mar. 14, 2012, 2012CPD ¶ __ , we sustained a protest filed by another SDVOSB concern against a VA procurement being conducted pursuant to FSS procedures in which, like here, the protester asserted that the agency had failed to comply with the requirements of the VA Act and its implementing regulations. The issue raised and the agency’s arguments in the recent Aldevra protest are the same as the issue and arguments presented here; in fact, the arguments presented in the agency’s briefs in both cases are identical.

For the same reasons that we discussed at length in our recent decision, we reject the VA’s arguments in the current protest. Here, as in Aldevra, supra, the VA has not conducted market research to determine if there are two or more eligible SDVOSB (or VOSB) concerns capable of performing the agency’s requirements. Consistent with our recent decision, we conclude that the 2006 VA Act requires that the agency make a determination whether an acquisition should be set aside for SDVOSB (or VOSB) concerns prior to conducting a procurement using FSS procedures. We therefore sustain Crosstown’s protest.  (Crosstown Courier Service, Inc., B-406262, Mar 21, 2012)  (pdf)


Aldevra filed this protest prior to the closing time for the solicitation, arguing that the agency acted improperly by using FSS procedures without first conducting market research to determine whether the procurement should be set aside for [service-disabled veteran-owned small business]  SDVOSB concerns. Protest at 1-2. Aldevra asserts that if the agency had conducted market research, it would have found that at least two SDVOSBs could meet the requirement at a reasonable price. Id. at 2. The agency concedes that it did not conduct market research to determine whether two or more SDVOSB concerns could meet the requirement at a reasonable price. Agency E-mail to GAO (Jan. 14, 2012).

The issue raised in this protest is identical to the issue presented in a prior protest filed by Aldevra. See Aldevra, B-405271, B-405524, Oct. 11, 2011, 2011 CPD ¶ 183. Specifically, this protest concerns the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the VA Act), which provides in part:

(d) Use of restricted competition.--Except as provided in subsections (b) and (c), for purposes of meeting the goals under subsection (a), and in accordance with this section, a contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.

38 U.S.C. § 8127(d) (2006). The statute also establishes an order of priority for awarding contracts to small business concerns, providing that the first priority shall be given to SDVOSB concerns, followed by veteran-owned small business (VOSB) concerns. Id. § 8127(i). Following enactment of the statute, the VA issued implementing regulations which, as relevant here, state as follows:

(a) Except as authorized by 813.106, 819.7007 and 819.7008, the contracting officer shall set aside an acquisition for competition restricted to SDVOSB concerns upon a reasonable expectation that:

(1) Offers will be received from two or more eligible SDVOSB concerns; and

(2) Award will be made at a reasonable price.

Veterans Administration Acquisition Regulation (VAAR), 48 C.F.R. § 819.7005(a) (2011).

Our Office sustained Aldevra’s prior protest, finding that nothing in the VA Act or the VAAR provides the agency with discretion to conduct a procurement under FSS procedures without first determining whether the acquisition should be set aside for SDVOSB concerns.

(section deleted)

The Plain Meaning of 38 U.S.C. § 8127

With respect to the merits of Aldevra’s protest, the agency maintains that it need not have considered whether two or more SDVOSB concerns could meet the requirement at a reasonable price before conducting the procurement through the FSS program because our decision in the prior protest was incorrect. AR at 1, 8-10. In this regard, the agency argues that in resolving the prior protest, our Office failed to recognize that 38 U.S.C. § 8127(d) includes the phrase “for purposes of meeting the goals under subsection (a),” which, according to the agency, qualifies the requirement for the agency to preliminarily determine whether a procurement should be set aside for SDVOSB concerns. See id. at 8-9. Subsection (a), as referenced in subsection (d), states in relevant part:

(1) In order to increase contracting opportunities for [SDVOSB and VOSB concerns], the Secretary [of the VA] shall--

(A) establish a goal for each fiscal year for participation in Department contracts (including subcontracts) by [VOSB concerns]; and

(B) establish a goal for each fiscal year for participation in Department contracts (including subcontracts) by [SDVOSB concerns].

38 U.S.C § 8127(a).

The agency argues that the phrase “for purpose of meeting the goals under subsection (a)” signals that “Congress did not . . . require that this authority [referenced in subsection (d)] be used in conducting all VA procurements, including FSS purchases.” AR at 2. Thus, according to the agency, the statute should be interpreted to mean that the “VA may consider its current achievements vis-ŕ-vis attaining the Secretary’s SDVOSB/VOSB contracting goals in deciding to do restricted competitions.” Id. at 9.

As an initial matter, although the agency has defended numerous protests before our Office involving precisely this issue, this is the first time that the agency has raised these arguments. Thus, until this protest, the agency had not suggested that the phrase “for purposes of meeting the goals under subsection (a)” as it appears in 38 U.S.C. § 8127(d) grants the agency discretion to decide that in some procurements the mandate in the statute will apply, and in other procurements it will not.

In matters concerning the interpretation of a statute, the purpose is clear: to determine and give effect to the intent of the enacting legislature. Philbrook v. Glodgett, 421 U.S. 707, 713 (1975). In furtherance thereof, the first question is whether the statutory language provides an unambiguous expression of the intent of Congress. If it does, the matter ends there, for the unambiguous intent of Congress must be given effect. Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984).

We find that the plain language of 38 U.S.C. § 8127(d) mandates that the VA “shall” conduct its procurements using an SDVOSB (or VOSB) set-aside when there is a reasonable expectation that two or more SDVOSB (or VOSB) concerns can meet the requirement at a reasonable price. The phrase “for purposes of meeting the goals” is part of an introductory clause that establishes exceptions to the mandate (those exceptions being when subsections (b) and (c) apply). The phrase explains the purpose for the mandate, which is to meet the goals established under subsection (a); however, the phrase does not create an exception to the mandate.

In addition, the exceptions set out in subsections (b) and (c) of section 8127 use the discretionary term “may,” in contrast to subsection (d)’s use of the mandatory term “shall.” This distinction provides further evidence of a congressional intent to require--rather than permit--SDVOSB or VOSB set-asides under subsection (d), when conditions of the statute are met.

Finally, we note that the legislative history of the VA Act underscores that 38 U.S.C. § 8127 was intended to broadly foster participation in VA procurements by SDVOSB and VOSB concerns. For example, the House Committee on Veterans’ Affairs report accompanying the bill that ultimately was enacted stated, among other things, that the bill would “[p]rovide veteran and service-disabled, veteran-owned small businesses priority in VA contracting . . . .” H.R. Rep. No. 109-592 (2006) at 12. The committee report also included the statement that “the Committee believes that small businesses owned and controlled by veterans and service-disabled veterans should routinely be granted the primary opportunity to enter into VA procurement contracts.” Id. at 14-15. We read these statements to reflect a congressional expectation that the VA generally will conduct procurements with the purpose of meeting the SDVOSB and VOSB participation goals.

VA’s Remaining Contentions

For the record, the VA argues that our Office should abandon our previous conclusions about the plain meaning of this statute, and should instead conclude that the statute is ambiguous, and show deference to one of the VA’s interpretations of the statute. In our view, the VA has not yet proffered an interpretation to which we can properly defer.

With respect to the VA’s newly-raised argument that our Office should defer to its view that the phrase in section 8127(d) that states “for purposes of meeting the goals under subsection (a)” permits the agency to, in some circumstances, disregard the statute, we note first that this interpretation is nowhere to be found in the VA’s 2009 notice and comment rulemaking. In essence, the VA seeks Chevron deference for a rulemaking it has never performed. Despite this lack of rulemaking, the VA now claims blanket discretion to define the scope of procurements to which the statutory mandate applies. We see no basis for this broad discretion.

With respect to the VA’s previously-raised argument that our Office should defer to its 2009 rulemaking that stated that the FAR language in Part 19 applies to the SDVOSB set-aside program created by the VA Act, the VA’s conclusions in that rulemaking were refuted by the express language of the FAR section upon which the VA relies. See Aldevra, supra, at 5 (explaining that FAR subpart 19.14--the only subpart within FAR Part 19 that addresses set-asides for SDVOSBs--implements the requirements of the Veterans Benefit Act of 2003, which applies government-wide, and not the 2006 VA Act, which applies only to VA procurements).

Finally, we turn to the VA’s additional argument that our decision in the prior protest did not give meaning to 38 U.S.C. § 8128(a)--a separate subsection of the VA Act, which provides, in its entirely, as follows:

(a) Contracting priority.--In procuring goods and services pursuant to a contracting preference under this title or any other provision of law, the Secretary [of the VA] shall give priority to a small business concern owned and controlled by veterans, if such business concern also meets the requirements of that contracting preference.

38 U.S.C. § 8128(a). Based on this subsection, the agency argues that “if a SDVOSB/VOSB is not a FSS contract holder, it cannot be viewed as meeting the same requirements of that contracting preference, the FSS program, and, therefore, is not entitled to any priority preference.” AR at 9-10.

We disagree with the VA’s characterization of the FSS program as a “contracting preference.” Instead, we read 38 U.S.C. § 8127(d) to require a preliminary determination about whether there was a reasonable expectation that two or more SDVOSB (or VOSB) concerns can meet the requirement at a reasonable price. Once the agency makes this determination, the agency then can determine whether to apply another contracting preference or to proceed using FSS procedures.

In sum, we find unreasonable, and inconsistent with the statute, the agency’s failure to determine whether two or more SDVOSB concerns can meet the requirement at a reasonable price before using FSS procedures.  (Aldevra, B-406205, Mar 14, 2012) (pdf)


The VA contends that Kingdomware has not been prejudiced by the agency's corrective action because the protester had the opportunity to submit a quotation in response to the revised FSS solicitation and chose not to do so.Agency Report at 2.The VA also argues that, because the protester did not submit a quotation, it is not an interested party to further challenge the procurement. Id. at 3.

As an initial matter, we disagree that Kingdomware is not an interested party to challenge the agency's actions.Under the Competition in Contracting Act of 1984, 31 U.S.C. sections 3551-3556 (2006) and our Bid Protest Regulations, 4 C.F.R. sect. 21.0(a)(1) (2011), only an "interested party" may protest a federal procurement.That is, a protester must be an actual or prospective bidder or offeror whose direct economic interest would be affected by the award of a contract or the failure to award a contract.Here, Kingdomware protested the terms of the RFQ, arguing among other things that the VA had not reasonably determined whether the procurement should be set aside for SDVOSBs.Kingdomware also timely objected to the VA's proposed corrective action, arguing that in accordance with the 2006 VA Act the VA was required to perform market research to determine whether an SDVOSB set-aside was appropriate.Where, as here, the protester is challenging the terms of the solicitation, and the remedy sought is the opportunity to compete under a revised solicitation, the protester is an interested party, even if it did not submit a quotation or offer.See Courtney Contracting Corp., B-242945, June 24, 1991, 91-1 CPD para. 593 at 4-5.

We also do not agree with the VA that Kingdomware has not been prejudiced by the agency's actions.As noted above, in Aldevra, supra, we found that the VA's decision to procure items from the FSS without determining whether the procurement should be set aside for SDVOSBs violated the 2006 VA Act.We also noted that the VA's regulations implementing the 2006 VA Act provide in relevant part:

(a) . . . .the contracting officer shall set aside an acquisition for competition restricted to SDVOSB concerns upon a reasonable expectation that:

(1) Offers will be received from two or more eligible SDVOSB concerns and;

(2) Award will be made at a reasonable price.

VA Acquisition Regulation, 48 C.F.R. sect. 819.7005(a) (2010).Here, as in Aldevra, the VA has not conducted market research to determine if there are two or more eligible SDVOSBs capable of performing the agency's requirements.

In sum, consistent with our decision in Aldvera, we conclude that the 2006 VA Act requires that the agency make a determination whether an acquisition should be set aside for SDVOSB concerns prior to conducting a procurement using FSS procedures.  (Kingdomware Technologies, B-405727, December 19, 2011)  (pdf)


MICCI argues that because it offered a lower price than Seawolf, the [Department of Veterans Affairs] VA was required under the class deviation to VAAR sect. 804.1102 to notify MICCI of its status as the apparently successful offeror and expedite the [VA's Center for Veterans Enterprise] CVE's review of MICCI's application to be verified and listed in the VIP database as an [service-disabled, veteran-owned small business] SDVOSB concern.

The VA argues that MICCI is not an interested party to pursue this protest because on September 28, 2011, the CVE denied MICCI's application for inclusion in the [Vendor Information Pages] VIP database. Agency Report, Tab 4, CVE Letter to MICCI, Sept. 28, 2011, at 1.

Under the bid protest provisions of the Competition in Contracting Act of 1984, 31 U.S.C. sections 3551-3556 (2006), only an "interested party" may protest a federal procurement. That is, a protester must be an actual or prospective bidder or offeror whose direct economic interest would be affected by the award of a contract or the failure to award a contract. Bid Protest Regulations, 4 C.F.R. sect. 21.0(a)(1) (2011). Determining whether a party is interested involves consideration of a variety of factors, including the nature of issues raised, the benefit or relief sought by the protester, and the party's status in relation to the procurement. Four Winds Servs., Inc., B-280714, Aug. 28, 1998, 98-2 CPD para. 57. A protester is not an interested party where it would not be in line for contract award were its protest to be sustained. Id. Here, MICCI would not be in line for award even if we were to sustain the protest because the CVE has denied its application for inclusion in the VIP database as an SDVOSB concern.

MICCI contends that the CVE erred in rejecting MICCI's application, and that the protester remains an interested party because it has filed a request for reconsideration with the CVE and is awaiting the CVE's decision. Comments at 4. Although MICCI has filed a request for reconsideration, the determination that MICCI is not an eligible SDVOSB concern remains in effect, and thus provides no basis for us to consider the agency's actions. See A1 Procurement, LLC, B-405535, Nov. 18, 2011; see also S.A. Saber, B-249874, Dec. 10, 1992, 92-2 CPD para. 403 (holding that small business concern, which had been determined to be other than small by the Small Business Administration (SBA), was not an interested party to challenge award of a small business set-aside contract, notwithstanding a pending appeal with SBA).

The protest is dismissed.  (MICCI Imaging Construction Company, Inc., B-405654, November 28, 2011)  (pdf)


Kingdomware contends that the agency failed to determine whether this acquisition was suitable for an SDVOSB set-aside and, as a result, the agency improperly competed the requirement on an "unrestricted" basis. Protest at 1, 6; Comments at 4-5. In this regard, Kingdomware argues that the agency failed to comply with FAR sect. 19.502-2(b), which generally requires than an agency set aside acquisitions with an anticipated dollar value of more than $150,000 for small businesses where there is a reasonable expectation of receiving fair market prices from at least two small business concerns. In support of its position that the solicitation should have been set aside for SDVOSBs, Kingdomware also relies on FAR sect. 19.1405, which generally provides that an agency may set aside acquisitions for SDVOSBs when there is a reasonable expectation that offers will be received from at least two SDVOSBs and award will be made at a fair market price. Protest at 1, 6; Comments at 4-5. Kingdomware asserts that it provided the agency with information indicating that numerous SDVOSBs could provide the required emergency notification service. Protest at 5; Comments at 8, 10, 12.

The regulations that implement small business programs and the GSA FSS program expressly anticipate and exclude FSS purchases from the set-aside requirements in FAR part 19. In particular, FAR sect. 8.404(a) and FAR sect. 38.101(e)--both of which pertain to FSS purchasing--provide that FAR part 19 does not apply to orders placed against FSS contracts. Similarly, FAR sect. 19.502-1(b), which pertains to small business set-aside requirements, also provides that FAR part 19 set-aside requirements do not apply to FSS purchases. In sum, the FAR part 19 regulations on which Kingdomware's protest is predicated do not impose a requirement on agencies to first evaluate whether a solicitation should be set-aside for small businesses--or SDVOSBs--before purchasing the goods or services through the FSS program. Edmond Computer Co.; Edmond Sci. Co., B-402863, B-402864, Aug. 25, 2010, 2010 CPD para. 200 at 2-3; Future Solutions, Inc., B-293194, Feb. 11, 2004, 2004 CPD para. 39 at 3. Accordingly, it was not improper for the agency here not to set this requirement aside for SDVOSBs, and Kingdomware's arguments to the contrary provide no basis on which to sustain the protest.

Kingdomware asserts that the solicitation is defective in two other respects. First, Kingdomware objects to the solicitation's reference to the MOBIS schedule. Protest at 6. Second, Kingdomware objects to the requirement that the emergency notification service include a capability to notify and receive responses through social media, such as Instant Messenger, Facebook, and Twitter. Protest at 7. Kingdomware contends that this requirement amounts to a government endorsement of the use of social media by federal employees during work, and that such a requirement is unnecessary because emergency notifications and responses "could [occur] directly through the emergency notification solution." Id.


With respect to the solicitation's reference to MOBIS, the agency responds that the reference was an error. Contracting Officer's Statement para. 17. The agency, however, maintains that the error did not prejudice Kingdomware because the solicitation was sent only to vendors that hold GSA Schedule 70 contracts--including Kingdomware-- and because the agency received no vendor questions regarding the reference. Id.; Memorandum of Law at 4-5. With respect to the solicitation's social media notification capability requirement, the agency responds that the requirement reflects the agency's need to quickly alert staff as to a potential emergency in a broad range of formats. Contracting Officer's Statement para.15. The social media format is necessary, the agency explains, in the event that problems arise with other communication formats, such as when cellular telephone service is disrupted or overloaded. Id. paras. 15, 16. The agency further explains that the social media notification capability is useful for reaching employees when they are not in the workplace. Id. para. 16.

Kingdomware in its comments on the agency report did not rebut the agency's responses regarding the MOBIS reference or the social media notification capability requirement. Consequently, we consider these protest grounds to be abandoned. Washington-Harris Group, B-401794, B-401794.2, Nov. 16, 2009, 2009 CPD para. 230 at 5 n.3; Strategic Res., Inc., B-287398, B-287398.2, June 18, 2001, 2001 CPD para. 131 at 10-11.  (Kingdomware Technologies, Inc., B-405533.2, November 10, 2011)  (pdf)


The protester contends that the sole-source awards are improper because the VA failed to consider other qualified SDVOSBs for award. Protest (B-405492) at 1; Protest (B-405493) at 1. The protester argues that the VA should have set aside these procurements for SDVOSBs--and not have awarded sole-source contracts--because two or more SDVOSBs would have submitted offers for the work. Protest (B‑405492) at 1; Protest (B-405493) at 1; Comments at 1.

Under the Veterans First Contracting Program, the VA has authority to award contracts using other than full and open competition (including set-aside procurements and sole-source awards) in certain circumstances. See 38 U.S.C. sect. 8127. With regard to setting aside procurements exclusively for veteran-owned small businesses (VOSBs) or SDVOSBs, 38 U.S.C. sect. 8127(d) states:

Except as provided in subsections (b) and (c), . . . a contracting officer of the [VA] shall award contracts on the basis of competition restricted to [VOSBs or SDVOSBs] if the contracting officer has a reasonable expectation that two or more [VOSBs or SDVOSBs] will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States."

38 U.S.C. sect. 8127(d) (emphasis added); see Buy Rite Transport, B-403729, B-403768, Oct. 15, 2010, 2010 CPD para. 245 at 3.

Subsection (c), referred to in the above provision, provides the VA with authority to award sole-source contracts to SDVOSBs when:

(1) such concern is determined to be a responsible source with respect to performance of such contract opportunity;

(2) the anticipated award price of the contract (including options) will exceed the simplified acquisition threshold . . . but will not exceed $5,000,000; and

(3) in the estimation of the contracting officer, the contract award can be made at a fair and reasonable price that offers best value to the United States. 38 U.S.C. sect. 8127(c); see Apex Ltd., Inc., B-402163, Jan. 21, 2010, 2010 CPD para. 35 at 2; In & Out Valet Co., B-311141, April 3, 2008, 2008 CPD para. 71 at 3.

Subsection (b) provides that, for contracts with SDVOSBs for amounts less than the simplified acquisition threshold, the VA is also authorized to use noncompetitive procedures. 38 U.S.C. sect. 8127(b).

Here, the VA awarded the sole-source contracts to FCX pursuant to its authority under the Veterans First Contracting Program. The protester's assertion that the VA should have set aside the procurements for SDVOSBs is without merit because the requirement to set aside certain procurements only applies when the VA does not use its sole-source authority under the Veterans First Contracting Program. As emphasized above, the VA is required to set aside certain procurements "[e]xcept as provided in subsections (b) and (c) . . . ." 38 U.S.C. sect. 8127(d). Subsections (b) and (c) are the VA's authority under the Veterans First Contracting Program to award sole-source contracts to SDVOSBs. See 38 U.S.C. sections 8127(b) and (c). Therefore, because the VA used the authority provided in 8127(b) and 8127(c) to award sole‑source contracts to FCX, the VA was not required to set aside for SDVOSBs these procurements.

The record here shows that the agency's decision to award these sole-source contracts to FCX was in accord with the statute authorizing the award of sole-source contracts to SDVOSBs. See Apex Ltd., Inc., supra. Accordingly, we find no basis to sustain the protests.  (Crosstown Courier Service, Inc., B-405492, B-405493, November 8, 2011)  (pdf)


VA argues that neither the VA Act, nor the VA's implementing regulations, require the agency to consider SDVOSB and VOSB set-asides prior to determining whether to purchase goods or services through the [Federal Supply Schedule] FSS program. AR, July 20, 2011, at 3; AR, Sept. 27, 2011, at 2. The agency contends that it has the discretion to determine whether to meet its requirements through the FSS before procuring from other sources—such as SDVOSBs or VOSBs. Id.

We see nothing in the [Veterans Benefits, Health Care, and Information Technology Act of 2006] VA Act or the VAAR that provides the agency with discretion to conduct a procurement under FSS procedures without first determining whether the acquisition should be set aside for SDVOSBs. The provisions of both the VA Act and the VAAR are unequivocal; the VA "shall" award contracts on the basis of competition restricted to SDVOSBs where there is a reasonable expectation that two or more SDVOSBs will submit offers and award can be made at a fair and reasonable price. Thus, contrary to the agency's position, the VA Act requires, without limitation, that the agency conduct its acquisitions using SDVOSB set asides where the necessary conditions are present. 38 U.S.C. sect. 8127-8128.

Moreover, since the agency concedes that there are at least two SDVOSBs capable of meeting its requirements under solicitation RQ-1170, it must set this requirement aside exclusively for SDVOSBs. Because the agency did not conduct market research to determine if there are two or more SDVOSB concerns capable of performing the requirements under solicitation 179-0306, it must conduct market research and, if it determines that there are two or more firms capable of performing the requirements, it must set this requirement aside exclusively for SDVOSB concerns.

In our view, the discussion above disposes of the question raised by this protest. The VA has argued, however—in pleadings filed in response to this protest, and in pleadings filed in several other protests currently pending before our Office—that it addressed and resolved the applicability of the VA Act to the FSS when it promulgated the above-quoted provisions of the VAAR. AR, July 20, 2011, at 6-7; AR, Sept. 27, 2011, at 3.

The comments on the agency's proposed regulations, and the agency's responses in answer to those comments, were published in the Federal Register, which included the following exchange addressing the applicability of the VA Act to FSS acquisitions:

Comment: VA received a comment stating that the proposed rule was unclear whether it was intended to be applicable to task and delivery orders under the Federal Supply Schedule (FSS). The commenter indicated that although GSA [General Services Administration] has delegated to VA the authority to administer certain schedules, the delegation does not extend to policy implementation. The commenter recommended a revision stating that SDVOSB and VOSB set-asides and sole source provisions do not apply at the FSS order level.

Response: We disagree with the commenter and reject the suggestion because this rule does not apply to FSS task or delivery orders. VA does not believe a change to the regulation is needed, and 48 CFR part 8 procedures in the FAR [Federal Acquisition Regulation] will continue to apply to VA FSS task/delivery orders. Further, VA will continue to follow GSA guidance regarding applicability of 48 CFR part 19 of the FAR, Small Business Programs, which states that set-asides do not apply to FAR part 8 FSS acquisitions.

74 Fed. Reg. 64619 (Dec. 8, 2009).  As stated above, the VA contends that this commentary addressed and resolved the applicability of the VA Act to FSS acquisitions. The VA also contends that it reasonably relied on the FAR in concluding that the VA Act does not apply to FSS acquisitions.

As the VA correctly points out, FAR sect. 8.404 (a) expressly provides that the requirements related to small businesses in FAR part 19 are inapplicable to FSS acquisitions with the exception of FAR sect. 19.202-1 (e)(1)(iii) (not relevant here). FAR part 19 includes requirements relating to various small business programs.

Of relevance here, FAR subpart 19.14 includes provisions relating to one program for the award of contracts to SDVOSBs; this is the only subpart of FAR part 19 that addresses set-asides for SDVOSBs. Subpart 19.14, however, implements the requirements of the Veterans Benefit Act of 2003, which was codified at 15 U.S.C. sect. 657f (2006), and applies government-wide. See FAR sect. 19.1402. The 2006 VA Act, which is codified at 38 U.S.C. sections 8127, 8128, applies only to VA procurements. See Angelica Textile Servs., Inc. v. U.S., 95 Fed. Cl. 208, 222 (2010) (noting that the VA is the only agency to which the requirements of the Veterans Benefits Act of 2006 apply).

In addition—and in contrast to the 2006 VA Act at issue here—the Veterans Benefit Act of 2003 provides, in relevant part, that:

In accordance with this section, a contracting officer may award contracts on the basis of competition restricted to small business concerns owned and controlled by service-disabled veterans if the contracting officer has a reasonable expectation that not less than 2 small business concerns owned and controlled by service-disabled veterans will submit offers and that award can be made at a fair market price.

15 U.S.C. sect. 657f (b) (emphasis added).

Simply stated, the 2003 government-wide program is separate and distinct from the VA-specific program created by the VA Act of 2006. As a result, the FAR language implementing the 2003 Act—and exempting the FSS program (among other programs) from its requirements—has no application to the statute at issue here. In addition, the program created by the 2003 statute is permissive in nature, insofar as it provides that contracting officers "may" restrict competition to SDVOSBs in appropriate circumstances. See, e.g., Mission Critical Solutions, B-401057, May 4, 2009, 2009 CPD para. 93 at 3.

In light of these considerations, we conclude that the exception in the FAR that permits agencies to award task and delivery orders under the FSS without regard to government-wide small business programs—including the SDVOSB set-aside program created by the 2003 statute (and implemented by FAR subpart 19.14)—does not govern, or apply to, the SDVOSB set-aside program created by the Veterans Benefits, Health Care, and Information Technology Act of 2006.

RECOMMENDATION

We recommend that the agency cancel solicitation RQ-1170 and re-solicit its requirements using a SDVOSB set-aside. We recommend that the agency conduct a reasonable market research regarding its requirements under solicitation 179-0306, and, that it cancel solicitation 179-0306 and re-solicit its requirements using a SDVOSB set-aside if it determines that there are two or more SDVOSB concerns capable of performing the requirements. We also recommend that the agency reimburse the protester the costs of filing and pursuing the protests. 4 C.F.R. sect. 21.8(d)(1) (2011).  (Aldevra, B-405271; B-405524, October 11, 2011) (pdf)


The protester argues that the VA improperly rejected its bid because the contracting officer incorrectly determined that FedCon was not listed in the VIP database, and because the firm qualifies for an expedited verification review of its VIP application under the class deviation. Protest at 2; Comments at 2. The VA contends that FedCon was not listed in the VIP database at the time of award, and therefore FedCon does not qualify for an expedited verification decision under the class deviation and is ineligible for award. AR at 4-5.

As noted above, an SDVOSB firm must be listed in the VIP database in order to receive a contract award in an SDVOSB set-aside procurement. 38 U.S.C. sect. 8127(e). A firm cannot be listed in the VIP database without the VA first verifying the firm's SDVOSB status. 38 U.S.C. sect. 8127(f)(4). In connection with solicitations issued on or after October 1, 2010 (such as the one here), the class deviation permits an expedited review of firms that are listed but not verified in the VIP database if those firms are selected for award. Protest, encl. 1, VA Memorandum, at 1-5; IFB at 10. Otherwise, the review of a firm's SDVOSB status will be completed, "when practicable," within 60 days after receipt of a completed application for verification. 38 C.F.R. sect. 74.11.

Here, FedCon does not assert that it was listed but not verified in the database prior to enactment of the pre-listing verification requirement in October 2010, such that the firm would qualify for an expedited review of its status if selected for award. Rather, FedCon asserts only that it commenced the application process for verification and listing on June 9, 2011.[7] FedCon did not complete the verification application until August 15 (two months after bid opening), and CVE is currently reviewing the firm's status on a non-expedited basis. Agency Response to GAO Questions, Sept. 1, 2011, at 3; Comments at 3. Given that FedCon was not listed in the VIP database when it submitted its application, the firm is not entitled to an expedited review of its status. Instead, the firm is statutorily precluded from being listed in the VIP database until its SDVOSB status is verified. See 38 U.S.C. sect. 8127(f)(4). Because the firm was not listed in the database at the time of award, and is not entitled to an expedited review of its SDVOSB status, the firm is ineligible for award of the contract here. See 38 U.S.C. sect. 8127(e).

The protest is denied.  (FedCon RKR JV LLC, B-405257, October 4, 2011)  (pdf)


Further, the agency notes (and Pro South-Emcom does not dispute) that, although one member of the Pro South-Emcom joint venture (Pro South Construction LLC) was registered as an SDVOSB on the VetBiz database, the joint venture itself was not. Accordingly, the agency maintains that the joint venture was not eligible for award. We agree.

The Veterans Benefits, Health Care, and Information Technology Act of 2006, Pub. Law No. 109-461, provides the VA with independent authority to restrict competition to SDVOSB concerns under certain circumstances. 38 U.S.C. sect. 8127(d). In this regard, 38 U.S.C. sect. 8127(e) states that a small business concern may be awarded a contract only if the small business concern and the veteran owner of the small business concern are listed in a database of veteran-owned small business (VOSB) concerns, which the Act requires the Secretary of Veterans Affairs to maintain. The Secretary is required to verify that each small business concern listed in the database is owned and controlled by veterans, and where a service-connected disability is indicated, to verify the service-disabled status of the veteran. 38 U.S.C. sect. 8127(f).

We have specifically held, with regard to facts virtually identical to those presented here, that the requirements for registration on the VetBiz database are applicable to a joint venture offeror, and the fact that one member of the joint venture is registered does not meet those requirements. A-1 Procurement, JVG, B-404618.3, July 26, 2011, 2011 CPD para. __.

Here, while Pro South Construction Services, LLC, one of the joint venturers, is an SDVOSB concern listed in the VetBiz database, the record shows that the joint venture offeror itself--Pro South-Emcon--is not. Accordingly, Pro South-Emcom was not eligible for award under the terms of the solicitations. Id.  (Pro South-Emcon, a Joint Venture, B-405267; B-405268, August 18, 2011)  (pdf)


Al JVG protests that the VA's rejection of its proposal was unreasonable because the contracting officer erroneously concluded that the joint venture was not listed in the VetBiz database. A1 JVG argues that, under VAAR sect. 819.7003(b) and (c), the joint venture could rely on the VetBiz listing of the SDVOSB managing partner in the joint venture.

As an initial matter, the VA contends, citing our decision in TEC/WEST-TEC JV, B‑402573.3, July 30, 2010, 2010 CPD para. 174, that GAO does not have jurisdiction to review the contracting officer's determination that A1 JVG is ineligible for award in this procurement. We agree that a firm's status as an SDVOSB concern and the VA's determination as to whether a firm should be included in the VetBiz database are not within our bid protest jurisdiction, as these have been given to VA to determine. TEC/WEST-TEC JV, supra, at 2-3.

In TEC/WEST-TEC JV, the protester challenged the SDVOSB status of the awardee. We concluded that GAO did not have jurisdiction to resolve protests of a firm's SDVOSB status under VA's Veterans First program because the Veterans Benefits, Health Care, and Information Technology Act of 2006 requires that SDVOSB eligibility be determined on the basis of a list maintained in a VA-controlled database (i.e., known alternatively as the VetBiz or VIP database), and that a firm's inclusion on the list is to be determined and verified by the VA. See 38 U.S.C. sect. 8127(e) and (f).

The protest here, however, does not concern the agency's determination regarding the inclusion of a firm in the VetBiz database. Rather, A1 JVG protests the contracting officer's decision that the joint venture was not listed in the VetBiz database and is thus ineligible for award. As with other contracting officer procurement decisions, we will review whether that decision is reasonable and consistent with applicable procurement laws and regulations. See e.g., Eagle Home Med. Corp., B‑402387, Mar. 29, 2010, 2010 CPD para. 82 at 4 n.4; see generally, SPM Mfg. Corp., B‑228078.2, Apr. 18, 1988, 88-1 CPD para. 370 at 2-3 (GAO will review an agency's determination of a small business's nonresponsibility where the Small Business Administration concludes that the issue is not subject to its review); Gutierrez-Palmenberg, Inc., B-255797.3, et al., Aug. 11, 1994, 94-2 CPD para. 158 at 8 (GAO will review competitive 8(a) procurements for compliance with applicable procurement laws and regulations). Moreover, as the regulations at issue here represent the VA's implementation of a VA-specific procurement statute, we are required to give deference to an agency's reasonable interpretation of its regulations. Singleton Enters.-GMT Mech., A Joint Venture, B-310552, Jan. 10, 2008, 2008 CPD para. 16 at 3.

Here, we agree with the VA's conclusion that A1 JVG was not eligible to receive award under the VA's regulations implementing the Veterans Benefits, Health Care, and Information Technology Act of 2006. Contrary to the protester's arguments, VAAR sect. 819.7003(c)(1) does not exempt a joint venture from the requirement that it must be listed in the VetBiz database to be eligible for award. Subsection (b) of VAAR sect. 819.7003 plainly provides that, to be eligible for award under a VA veteran-owned small business program set‑aside, an offeror must represent that it is an SDVOSB or VOSB concern and is listed in the VetBiz database. The offeror here is A1 JVG, and A1 JVG--as opposed to A1 LLC--is not listed.

Subsection (c) of the regulation does not propose an alternate method for offerors to be viewed as eligible for award under this program. Instead, the subsection states that a joint venture may be considered to be an SDVOSB or VOSB concern for a procurement if one member of the joint venture is an SDVOSB or VOSB and, as relevant here, the SDVOSB or VOSB member of the joint venture is listed as verified in the VetBiz database. See VAAR sect. 819.7003(c)(1). Satisfying the requirements in subsection (c) allows a joint venture to be considered to be an SDVOSB or VOSB offeror under subsection (b)(1). The joint venture offeror must still satisfy the remaining requirements of subsection (b), that is, as relevant here, to be listed in the VetBiz database.

In sum, given that the joint venture is not listed in the VetBiz database, which the VA has required in its implementation of this program, the contracting officer reasonably rejected A1 JVG's proposal as ineligible for award. This is the extent of our limited review in this matter. The question of whether A1 JVG will ultimately be included on the list of contractors eligible for award is a matter for the VA, not our Office. TEC/WEST-TEC JV, supra.

The protest is denied.  (A1 Procurement, JVG, B-404618.3, July 26, 2011)  (pdf)


The Veterans First Contracting Program, created by the Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. sect. 8127, and implemented by Veterans Affairs Acquisition Regulation (VAAR) sections 819.7004, 819.7005, provides the VA with independent authority to set aside contracts for SDVOSB and VOSB firms. See Apex Ltd., Inc., B-402163, Jan. 21, 2010, 2010 CPD para. 35 at 2. The Program provides that SDVOSB firms receive first priority for VA contract awards, and that VOSB firms receive second priority. 38 U.S.C. sect. 8127(i); VAAR sect. 819.7004. Further, under the Program, acquisitions must be set aside for SDVOSB firms if the VA determines that there is a reasonable expectation that offers will be received by at least two SDVOSB firms and that award can be made at a fair and reasonable price. 38 U.S.C. sect. 8127(d); VAAR sect. 819.7005. Generally, a procurement set-aside determination is a business judgment within the contracting officer's discretion, which we will not disturb absent a showing that it was unreasonable. Eagle Home Med. Corp.--Costs, B-299821.3, Feb. 4, 2008, 2008 CPD para. 41 at 2. Here, Buy Rite does not show that the VA unreasonably determined that it would receive offers from two or more SDVOSB firms at fair and reasonable prices.

The VA explains that, in preparation for the initial solicitation, it conducted its initial search for SDVOSB firms using the wrong search term, and found no SDVOSB firms listed. AR at 2. The VA states that after Crosstown Courier protested to our Office, the agency recognized its error and conducted another search in its Vetbiz database under the appropriate NAICS code, 492110, couriers and express delivery services, and found over 100 SDVOSB firms listed. Id. The VA reissued the requirements as SDVOSB set-asides. Id. at 3. In addition, the contracting officer points out that it had received four offers from SDVOSB firms under the initial procurement. Id., Tab 14, Memorandum to File, Aug. 9, 2010.

Buy Rite disputes many of the factual details of the VA's statement of explanation about why it reissued the requirements as SDVOSB set-asides. For example, Buy Rite points out that the VA stated that their initial search term was "taxi services" but the documentation it provided concerning its searches does not include the term. Comments at 2. Buy Rite is correct; the documentation provided by the VA shows that the VA used the NAICS code for taxi services in its search, not the actual words "taxi services." Buy Rite also contends that the timing of the various searches that the VA states that it performed do not correspond with the documentation the VA provided to support its explanation. Id. Again, Buy Rite is correct. Nonetheless, even though the agency's after-the-fact explanation contains factual inaccuracies, we will not disturb a set-aside decision when subsequent events justify the decision. See York Int'l Corp., B-244748, Sept. 30, 1991, 91-2 CPD para. 282 at 7. Regardless of the precise date when the VA conducted its search, the search results provided a reasonable basis for the VA to conclude that it would receive at least two offers from SDVOSB firms. In addition, we performed our own search to confirm the accuracy of the VA's results. Moreover, the receipt of four offers from SDVOSB firms in response to the original RFP further confirms the VA's decision to set aside the requirements.

Buy Rite also argues that the VA's determination is unreasonable because no California-based SDVOSB firms meet the RFP requirements. In this regard, Buy Rite appears to argue that the VA should have limited its search to SDVOSB firms located in California, as the VA did in its original search. Comments at 3. However, Buy Rite has not identified any provision in the solicitation or in any statute or regulation--nor are we aware of any--that would require such a limitation. Nor has Buy Rite explained why a firm with an address outside of California would be unable to perform these requirements. Moreover, the question of whether a company--wherever located--is capable of performing the contract is a matter of responsibility, which we generally will not consider. 4 C.F.R. sect. 21.5(c) (2010); see Marinette Marine Corp., B‑400697, et al., Jan. 12, 2009, 2009 CPD para. 16 at 23.

In sum, we conclude that the VA's decision to set aside these procurements for SDVOSB firms was reasonable, considering its search of the Vetbiz database, and its receipt of four offers from SDVOSB firms in response to the prior solicitation, which was set aside for VOSB firms.  (Buy Rite Transport, B-403729; B-403768, October 15, 2010) (pdf)


The [Department of Veterans Affairs] VA issued regulations implementing the Act which, as relevant here, state as follows:

(a) . . . Except as authorized by 813.106, 819.7007 and 819.7008, the contracting officer shall set aside an acquisition for competition restricted to [service-disabled veteran-owned small business] SDVOSB concerns upon a reasonable expectation that

(1) Offers will be received from two or more eligible SDVOSB concerns and;

(2) Award will be made at a reasonable price.

[Veterans Affairs Acquisition Regulation] VAAR, 48 C.F.R. sect. 819.7005(a) (emphasis added).

We see nothing in the VA Act or the VA regulations that exempts A/E procurements from the set-aside requirement. The VAAR does specify three exceptions to the requirement that contracting officers set aside acquisitions for SDVOSB concerns, but the fact that a procurement is for A/E services is not one of them. In fact, as discussed below, the VA itself offers no defense of its position based on the plain language of the Act or its regulations. Further, the Brooks Act, which prescribes procedures for conducting A/E procurements with a particular focus on how price is to be considered, is silent with respect to set-asides; nothing contained in it or its implementing regulations (FAR subpart 36.6) suggests a reasonable basis for asserting that A/E procurements are exempt from the Act or the VA regulations.

The agency offers several defenses of its decision not to set aside these requirements. We consider each of them in turn.

The agency argues that its implementing regulation--the VAAR provision quoted above--"did not otherwise modify or supplement FAR Part 36.6 [on the conduct of A/E procurements]," AR at 3, and that "set-asides are not generally applicable to A-E services contracting." Id. We see no relevance to the agency's accurate observation that its regulations did not modify the FAR provisions regarding A/E services procurements. The agency has offered no rationale, and we are aware of none, for why the fact that the VAAR did not modify FAR Part 36.6 would render the VAAR inapplicable to A/E services procurements. Moreover, while the agency asserts that set-asides are not "generally applicable" to A/E services contracting, it offers no legal foundation for this claim and, again, no rationale for why--even if true--it necessarily follows that the VA Act and the VAAR are inapplicable to A/E services procurements.

In the course of promulgating its regulations, the agency requested comments on them. Selected comments and agency responses were published in the Federal Register, including the following exchange that addresses the applicability of the then-proposed regulations to A/E services contracts. Because this exchange is the principal basis for the VA's argument that the statutory set-aside requirement does not apply to A/E procurements, we set it out in full, as follows:

3. Applicability to Architect-Engineering (A/E) Services

Comment: Several commenters asked whether proposed subpart 819.70 applies to the award of sole source VOSB and SDVOSB contracts for A/E contracts.

Response: This rule does not apply to the procedures to procure A/E services. Pursuant to the Brooks Act (Pub. L. 92-582), A/E services cannot be awarded on a sole source basis. The Brooks Act requires Federal agencies to publicly announce all requirements for A/E services, and to negotiate contracts for A/E services on the basis of demonstrated competence and qualifications for the type of professional services required at fair and reasonable prices. The sole source authority in 38 U.S.C. [sect.] 8127 does not override the Brooks Act because under general principles of statutory interpretation the specific governs over general language. In this instance, A/E contracting statutes govern versus contracting in general. However, since the Small Business Competitiveness Demonstration Program in [FAR subpart 19.10] includes A/E services as a designated industry group (DIG), VA contracting officers may use the provisions of 38 U.S.C. [sect.] 8127 and this rule when procuring [designated industry group] requirements [which include A/E services]. Section 19.1007(b)(2) of the FAR, 48 C.F.R. [sect.] 19.1007(b)(2), establishes that Section 8(a), Historically Underutilized Business (HUB) Zone and SDVOSB set-asides, must be considered in DIG acquisitions. However, using the provisions of 38 U.S.C. [sect.] 8127 and this rule, VA personnel may change the order of priority to consider SDVOSB and VOSB set-asides before Section 8(a) and HUB Zone set-asides when procuring A/E services under the Small Business Competitiveness Demonstration Program.

VA Acquisition Regulation: Supporting Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses, 74 Fed. Reg. 64620 (Dec. 8, 2009).

The agency argues that this comment and response interpreted A/E services procurements to be exempt from the regulation's set-aside requirement and that the agency's interpretation is due deference as the VA's "specific interpretation included in the rulemaking process." AR at 3.

We disagree with the agency that this comment and response reasonably can be read to mean that the VA interpreted its regulation to include an across-the-board exemption from the statutory set-aside requirement for A/E services procurements. The comment to which the VA was responding concerned only the issue of sole-source awards of A/E services contracts. Likewise, the agency's response repeatedly addressed the issue of whether the proposed regulation applied to the issuance of sole‑source A/E services contracts. Far from indicating that the VA regarded all A/E services procurements as exempt from the regulation, the VA's response noted that "VA contracting officers may use the provisions of 38 U.S.C. [sect.] 8127 and this rule when procuring [A/E services] requirements," referring to the very statute that imposes the set-aside requirement. We see no reasonable basis on which to conclude that this exchange in the Federal Register was intended to, or in fact did, indicate that the VA interpreted its proposed regulation to exempt A/E services procurements from the SDVOSB set-aside requirement.

More important, even if the Federal Register comment and response said what the agency claims, it would not, as the agency asserts, warrant deference as an agency interpretation of a statute arrived at through rule-making or adjudication. In matters concerning the interpretation of a statute, the first question is whether the statutory language provides an unambiguous expression of the intent of Congress. If it does, our analysis ends there, for the unambiguous intent of Congress must be given effect. Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984); Mission Critical Solutions, B-401057, May 4, 2009, 2009 CPD para. 93 at 6. Here, the statutory requirement that certain VA acquisitions be set aside for SDVOSB concerns is clear, and the agency has offered no sufficient explanation of the need to consult the Federal Register.

In any event, deference to the interpretation of an administering agency is dependent on the circumstances. Chevron, 467 U.S. at 843‑45; United States v. Mead Corp., 533 U.S. 218, 227-37 (2001). Where an agency interprets an ambiguous provision of the statute through a process of rule-making or adjudication, unless the resulting regulation or ruling is procedurally defective, arbitrary, or capricious in substance, or manifestly contrary to the statute, deference will be given to the agency's interpretation. Mead, 533 U.S. at 227-31; Chevron, 467 U.S. at 843-44. However, where the agency's position reflects an informal interpretation, Chevron deference is not warranted; in these cases, the agency's interpretation is "entitled to respect" only to the extent it has the "power to persuade." Gonzales v. Oregon, 546 U.S. 243, 255‑56 (2006).

Here, the comment and response appear in the Federal Register as part of the rule-making process, but the response is merely that, a response to a comment. The agency "interpretation" of the statute in question, 38 U.S.C. sect. 8127(d), is found in the regulation itself, VAAR sect. 819.7005, which unambiguously requires VA contracting officers to set aside an acquisition for competition restricted to SDVOSB concerns upon a reasonable expectation that competitive offers will be received from two or more eligible SDVOSB concerns. VAAR sect. 819.7005(a).

The agency argues that its Federal Register response was intended to address an ambiguity between the Brooks Act and the set-aside requirement in the VA Act, pointing to the fact that the Brooks Act selection procedures require discussions with at least three firms while the VA Act contemplates set-asides when there is the expectation that two or more firms are expected to submit competitive offers. According to the VA, "an ambiguity existed as to whether the set-aside and priority [under 38 U.S.C. sect. 8127] would apply to A&E contracting or the 'rule of three' associated with the Brooks Act would apply." Agency Comments, Sept. 21, 2010, at 8. As a result, the agency argues, the VA Act and the VAAR cannot be read as requiring the set-aside of A/E services procurements, and its Federal Register response was intended to so indicate. Contrary to the agency's position, the difference in the statutes does not establish the incompatibility of the Brooks Act with the VA Act or the VAAR, such that the VA is precluded from setting aside A/E services procurements for small businesses. While the award of a contract for A/E services must be governed by the policy expressed in the Brooks Act, the "zone of competition eligible for award" may properly be limited by set-asides for particular types of firms. Vector Eng'g, Inc., B‑193874, Oct. 11, 1979, 79-2 CPD para. 247 at 7-8.

In sum, we conclude that the VA Act and the VAAR do not exempt A/E services procurements from the statutory requirement that VA set aside procurements for SDVOSB concerns where the prerequisites set out in the Act are met. Accordingly, we recommend that for each of the eight requirements at issue here, the agency determine whether there is a reasonable expectation that it would receive offers from two or more eligible SDVOSB concerns and award would be made at a reasonable price. For each requirement where there is such an expectation, we recommend that the VA solicit the requirement on the basis of a competition restricted to SDVOSB concerns. We also recommend that Powerhouse be reimbursed the costs of filing and pursuing the protest, including reasonable attorneys' fees. 4 C.F.R. sect. 21.8(d)(1) (2010). Powerhouse should submit its certified claim for costs, detailing the time expended and costs incurred, directly to the contracting agency within 60 days after receipt of this decision. Id. sect. 21.8(f)(1). 

The protests are sustained.  (Powerhouse Design Architects & Engineers, Ltd., B-403174; B-403175; B-403176; B-403177; B-403633; B-403647; B-403648; B-403649, October 7, 2010) (pdf)


In the instant protest, the VA and the intervenor argue that the agency's actions here were fully in accord with the SBA's February 1 decision decertifying CEI, and our Office's decisions in Singleton I and Singleton II, which required the VA to reject CEI's offer once the VA learned of the SBA's February 1 decision decertifying CEI. They argue that, unlike in Singleton I, the contracting officer in this procurement did not make a determination on CEI's SDVOSBC status, but rather, as in Singleton II, merely followed an existing SBA determination of CEI's SDVOSBC status that was in effect at the time the agency intended to make award. Thus, the VA and the intervenor conclude that the VA did not reject CEI's offer on the basis of any VA determination, but on the basis of a standing SBA decision that CEI was "ineligible to bid on or receive any future SDVOSBC contracts." SBA Decision, Feb. 1, 2010, at 1.

In our view, this interpretation of the facts and relevant regulations and decisions is consistent with the SBA's position in the Singleton II protest. Specifically, we think the result in Singleton II supports the VA's conclusion that once the SBA determines that an offeror does not qualify as an SDVOSBC, the applicable regulations (13 C.F.R. sections 125.27 and 125.28) bar that offeror from being considered on any other SDVOSBC procurement until the determination is overturned on appeal to OHA, or the SBA grants prospective recertification pursuant to 13 C.F.R sect. 125.27.

We solicited the views of the SBA in reference to CEI's protest. In contrast to the SBA's previous advice on this issue, the SBA now contends that the VA should have considered CEI's offer and, if CEI were the apparently successful offeror, referred the matter of CEI's SDVOSBC status to the SBA for decision as an SDVOSBC status protest. Regarding the Singleton II decision, the SBA stated that although in that case it "acquiesced to a procuring agency's rejection of an offer based on a negative SDVO eligibility determination rendered in connection with an SDVO representation made on a prior procurement," in Singleton II "there was no reason to believe that the protester might have been eligible in connection with the procurement in question despite having been found to be ineligible in connection with the prior procurement." SBA Opinion, Apr. 23, 2010, at 3. In addition the SBA now maintains that the contracting officer in Singleton II should have referred the question of Singleton's status to the SBA. The SBA also explains that, because there was no reason to believe that Singleton was an eligible SDVOSBC in that case, the failure to refer to SBA was a "harmless error." SBA Submission, May 7, 2010, at 3.

As required by the Small Business Act, as amended by the Veterans Benefits Act, 15 U.S.C. sections 637(m)(5), 657f(d), the SBA has established procedures for interested parties to challenge a firm's size or status as a qualified SDVOSBC. 13 C.F.R. sections 125.24-125.28. The SBA has long interpreted these regulations to mean that questions concerning SDVOSBC status are not for resolution by the procuring agency, but by the SBA. Singleton Enters.--GMT Mech., A Joint Venture, B-310552, supra, at 3. The SBA now asserts that a standing SBA decision that an offeror is "ineligible to bid on or receive any future SDVOSBC contracts" in connection with a prior procurement is not conclusive in a subsequent procurement, but merely raises a question concerning the offeror's status that the contracting officer must refer to the SBA for conclusive resolution. We see nothing in the SBA's regulations (or the FAR) which conflicts with, or would prevent the SBA from taking, the position that notification of a decertification decision does not make a firm automatically ineligible for award, but instead requires the contracting officer to file a status protest in connection with a subsequent procurement.

We do not think that the facts in Singleton II can be meaningfully distinguished from the present protest and, as set forth below, we conclude that the SBA, in effect, has changed its position on this issue. In its April 11, 2008, submission in Singleton II, the SBA concluded that a standing decision of the SBA related to a prior procurement was to be followed by the contracting agency in a subsequent procurement. The SBA now takes the position that even where there is an SBA decision in effect on an offeror's lack of SDVOSBC status, the contracting officer cannot reject a proposal from that offeror in a subsequent procurement without again referring the matter to the SBA.

Our Office gives deference to an agency's reasonable interpretation of its regulations, and because the SBA is the agency responsible for promulgating the regulations regarding the SDVOSBC program, we give its interpretations of its regulations great weight. Id. at 3. Thus, while the SBA's position in the current protest runs contrary to its interpretation of these regulations at the time of the Singleton II protest, we cannot find unreasonable the current interpretation of the regulations now asserted by the SBA.

That said, we cannot conclude that the VA acted improperly in connection with the procurement at issue here, given that the agency acted in accordance with the SBA's interpretation of its regulations in effect at the time it made its decision to reject CEI's proposal. In this regard, our decision in Singleton II, which reflected the SBA's April 11, 2008 views on that protest, clearly supports the agency's and intervenor's arguments here that the SBA's February 1 decision decertifying CEI, still in effect on February 23, represented a bar to CEI's eligibility for award. In addition, we think the agency reasonably rejected CEI's offer, without referring the matter to the SBA. Accordingly, because CEI was not an eligible offeror on February 23, the date the agency intended to make award, CEI's protest of the rejection of its offer is denied.

The protest is denied.  (Combined Effort, Inc., B-402573, June 4, 2010) (pdf)


The IFB was issued on November 25, 2009. Bids were opened on December 30, and Corners was the apparent low bidder. However, on January 25, 2010, when VA accessed its database of SDVOSBs to determine whether Corners was an eligible SDVOSB, it found that Corners was not listed. Agency Report (AR) at 2. In this regard, VA maintains a database of SDVOSBs that are eligible to receive contracts under solicitations issued by VA as SDVOSB set-asides. 38 C.F.R. part 74 (2009). Eligible businesses are placed on the list for 1 year, after which they must re-apply to be included on the list again. 38 C.F.R. sect. 74.15. The record shows that Corners was listed in the database on January 16, 2009 for a period of 1 year. Corners was removed from the database before January 25, 2010, when the agency checked the database in anticipation of making award under the IFB. AR at 2. Because Corners was not listed, VA determined that Corners was not eligible for award, and made award to the next low bidder.

Corners maintains that it should be considered an eligible SDVOSB, and that it therefore should have received the award, because it was listed in the database on both the date the IFB was issued and the date of bid opening.

The statute granting VA authority to set aside procurements for SDVOSB concerns provides that "[a] small business concern may be awarded a [SDVOSB set-aside] contract . . . only if the small business concern . . . [is] listed in the database of veteran‑owned businesses. . . ." 38 U.S.C. sect. 8127(e) (2006). The VA regulation implementing this statute similarly provides that, "all . . . SDVOSBs must be listed in the . . . database . . . to receive contract awards under VA's Veteran-owned Small Business. . . [set-aside] program." VA Acquisition Regulation (VAAR) sect. 804.1102. VA asserts that, based on this language, a small business concern is eligible for award under a VA SDVOSB set-aside only if it is listed in the database on the date of award; thus, even though Corners was listed in the database at the time of bid opening, it was ineligible for award because it was no longer listed at the time of award.

We will uphold an agency's reasonable interpretation of a statute that it is responsible for implementing. Blue Rock Structures, Inc., B-293134, Feb. 6, 2004, 2004 CPD para. 63 at 8. VA's interpretation here is reasonable. While the statute and regulation do not expressly provide that small businesses must be "listed in the database" at the time of award, neither do they provide that listing is to be at the time of solicitation issuance or bid opening. We think the relevant language supports VA's interpretation, since it relates to a concern's status for purposes of receiving an award, suggesting that status at the time of award is contemplated. Moreover, this interpretation is consistent with the underlying purpose of SDVOSB set-asides--i.e., providing contracting opportunities to eligible SDVOSBs, see 38 U.S.C. sect. 8127(a)‑-and we think VA reasonably could determine that this purpose is best served, and that an eligible SDVOSB concern will actually perform the contract, if it satisfies the prerequisite to receiving award (listing) at the time award is made. Accordingly, there is no basis for us to question VA's determination that Corners, which was not listed in the database on the date of award, was ineligible for award. Compare CMS Info. Servs., Inc., B-290541, Aug. 7, 2002, 2002 CPD para. 132 at 2 (where request for quotations under Federal Supply Schedule was limited to small business concerns, agency reasonably required recertification of small business status to ensure that order would be issued to concern that currently qualifies as small business).  (See VA Regulation.)  (Corners Construction, B-402465, April 23, 2010)  (pdf)
 


The FAR provisions cited by the protester are inapplicable to the award challenged here. FAR Subpart 19.14 applies to the Service-Disabled Veteran-Owned Small Business Procurement Program, created by the Veterans Benefit Act of 2003, 15 U.S.C. sect. 657f (2006), and administered by the Small Business Administration. The award here was made pursuant to the Veterans First Contracting Program, created by the Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. sect. 8127, and administered by the VA. The Veterans First Contracting Program provides the VA with independent authority to make sole-source contract awards to SDVOSBs and veteran-owned small business firms. See In and Out Valet Co., B-311141, Apr. 3, 2008, 2008 CPD para. 71 at 3. Specifically, 38 U.S.C. sect. 8127(c) states:

(c) Sole Source Contracts for Contracts Above Simplified Acquisition Threshold.—

For purposes of meeting the goals under subsection (a), and in accordance with this section, a contracting officer of the Department [of Veterans Affairs] may award a contract to a small business concern owned and controlled by veterans using procedures other than competitive procedures if—
(1) such concern is determined to be a responsible source with respect to performance of such contract opportunity;

(2) the anticipated award price of the contract (including options) will exceed the simplified acquisition threshold (as defined in section 4 of the Office of Federal Procurement Policy Act (41 U.S.C. 403)) but will not exceed $5,000,000; and

(3) in the estimation of the contracting officer, the contract award can be made at a fair and reasonable price that offers best value to the United States.[2]
The Veterans First Contracting Program also includes a statement of priority for VA contract awards, which grants first priority to sole-source or set-aside contracts for SDVOSB firms, second priority to sole-source or set-aside contracts for veteran-owned small business firms, and lower priority for all other categories of small business firms. 38 U.S.C. sect. 8127(i).

In connection with its assertion that FAR Subpart 19.14 applies to the award here, Apex Limited argues that VA Information Letter 049-07-08, June 19, 2007, which provides guidance to VA contracting officers concerning the award of contracts to SDVOSBs and veteran-owned small business firms, states that "FAR Subpart 19.14 is still an existing authority." Protest at 2. However, in this argument Apex Limited selectively quotes from a portion of the Information Letter applicable to SDVOSB set-asides, and not to SDVOSB sole-source awards. In full, the quoted passage states, "While FAR Subpart 19.14 is still an existing authority, . . . [VA] contracting officers performing SDVOSB set asides must exclusively use the authority of 38 U.S.C. 8127." VA Information Letter 049-07-08, June 19, 2007, Attachment 1, at 2. Further, the Information Letter makes clear that VA contracting officers are authorized to make sole-source contract awards to SDVOSB firms under 38 U.S.C. 8127(c). Id.

In sum, the provisions of FAR Subpart 19.14 do not apply to the acquisition here and thus provide no basis for our Office to object to the award, which, the record shows, was properly made pursuant to the VA's statutory authority under the Veterans First Contracting Program.  (Apex Limited, Inc., B-402163,January 21, 2010)  (pdf)


WHG raises two primary arguments: (1) that the Army unreasonably interpreted the RFP as not requiring SDVOSB prime contractors to perform more than 50 percent of the contract requirements, and therefore improperly credited Skyline as being an SDVOSB offeror; and (2) that even under the agency’s own interpretation of the solicitation, Skyline should not have received credit as an SDVOSB offeror. For the reasons discussed below, we disagree.

First, WHG argues that the agency’s interpretation of the SDVOSB evaluation factor was unreasonable. As discussed above, the RFP stated that the agency would give favorable evaluation consideration to an SDVOSB offeror, and that an offeror’s status was one of the two most important evaluation factors. The protester does not dispute that Skyline, on its own, is an SDVOSB concern, as defined under Small Business Administration regulations. Instead, WHG argues that Skyline should not be eligible to receive credit as an SDVOSB under this procurement because, in the protester’s view, the solicitation and applicable FAR provisions state that SDVOSB contractors must perform more than 50 percent of the contract requirements in order to receive credit as an SDVOSB.

As a preliminary matter, WHG does not specifically state what statutory or regulatory provision it believes was violated in giving the SDVOSB evaluation credit to Skyline. However, the protester presumably refers to FAR part 19.14, which governs awards under the SDVOSB program. The FAR states that when an agency makes an SDVOSB sole-source award, or restricts a competition to SDVOSB offerors, the solicitation must include the clause at FAR sect. 52.219-27, Notice of Total Service-Disabled Veteran-Owned Small Business Set-Aside. FAR sections 19.1405, 19.1406. This clause requires an SDVOSB offeror--in a set-aside or sole-source procurement--to agree to perform, for service contracts, “at least 50 percent of the cost of personnel for contract performance.” FAR sect. 52.219-27(c)(1).

There is no dispute in this record that Skyline will perform less than 50 percent of the contract requirements. Instead, the Army contends, and we agree, that the SDVOSB set-aside clause at FAR sect. 52.219-27 was not included in this solicitation, was not required to be included here, and has no application to this procurement. This RFP expressly states that this procurement was neither an SDVOSB set-aside nor an SDVOSB sole-source award. RFP, Evaluation Criteria, sect. 4.1. We conclude, therefore, that the requirement for an SDVOSB contractor to perform at least 50 percent of the personnel costs in a service contract does not apply to this procurement.

WHG also argues that the Army’s interpretation of the solicitation was unreasonable because the RFP stated that an SDVOSB joint venture partner, but not an SDVOSB prime contractor, must perform more than 50 percent of the contract requirements in order to receive SDVOSB evaluation credit. The protester contends that there was no reasonable basis to distinguish between these two types of offerors and that the agency should have read the solicitation “as a whole” and applied the restriction to both offerors. As discussed above, however, the solicitation explicitly stated that these two categories of business arrangements would be treated differently in the evaluation. See RFP amend. 3, at 6. To the extent that the protester believes these solicitation provisions were improper or inconsistent with the FAR requirements for SDVOSBs, it cannot now timely challenge them, as such a challenge must be raised prior to the time for submission of proposals. Bid Protest Regulations, 4 C.F.R. sect. 21.2(a)(1); Continental Staffing, Inc., B-299054, Jan. 29, 2007, 2007 CPD para. 18 at 4-5.

Second, WHG argues that, even if the Army’s interpretation of the solicitation is reasonable, Skyline should not have received the SDVOSB credit because Skyline should not have been considered the prime contractor under its proposal. In this regard, the protester argues that a teaming agreement between Skyline and Sterling indicates that Sterling, rather than Skyline, is the prime contractor. We disagree.

Skyline’s proposal stated that the company was an SDVOSB, and included a February 26, 2009, letter from the Department of Veterans Affairs (VA) stating that the company had been certified as an SDVOSB. AR, Tab 9, Skyline Proposal, at 1. Skyline’s proposal also stated the following in the executive summary of its proposal regarding the relationship between the two entities:

As a [SDVOSB] providing excellent program management, logistics, and IT services support to the government for nearly a decade, Skyline will serve as the prime contractor. As the subcontractor partner, Sterling Medical furnishes well over 2,000 ([full-time equivalent]) qualified contract healthcare providers on behalf of federal agencies at more than 100 government facilities in the United States and 12 overseas nations.

AR, Tab 9, Skyline Proposal, at iv.

The CO explains that she found that Skyline was an SDVOSB by reviewing the offeror’s self-certification and letter from the VA in its proposal. Supp. CO Statement at 1. In addition the CO reviewed the following information to verify Skyline’s SDVOSB status: the GSA schedule contract listed in Skyline’s proposal; Skyline’s Central Contractor Registration entry; and Skyline’s representations and certifications in the Online Representations and Certifications Application website. Id. at 1-2; AR, Tab 14, SSD, at 7. With regard to the relationship between Skyline and Sterling, the CO reviewed the executive summary information quoted above, and concluded that the proposal clearly identified Skyline as the prime contractor, and Sterling as the subcontractor. Id. at 2. Based on these analyses, the CO concluded that Skyline merited evaluation credit as an SDVOSB.

With regard to WHG’s argument, the Army provided in its report on the protest a copy of a “Master Teaming Agreement” between Sterling and Skyline. The teaming agreement sets forth an arrangement whereby Skyline may perform work under Sterling’s FSS contract 621-I. The “Objective” for the agreement is as follows: “This Agreement is for the purpose of establishing the cooperative relationship of the Parties and for facilitating the utilization of Skyline under Sterling Medical’s [GSA] Schedule, in order to further the interests of both Team Members.” AR, Tab 9A, Teaming Agreement, at 1. WHG argues that the teaming agreement shows that Skyline will be Sterling’s subcontractor on the contract, based on the following statements:

(D) Sterling Medical desires to appoint Skyline as a dealer under its [GSA] schedule.

(E) In order to facilitate Skyline’s participation as a small business and as [an] SDVOSB Sterling Medical desires to also utilize Skyline as mutually agreeable as a subcontractor under its schedule.

Id.

In reviewing a protest of an agency’s evaluation of proposals, our Office will examine the record to determine whether the agency’s judgment was reasonable and consistent with the stated evaluation criteria and applicable procurement statutes and regulations. See Shumaker Trucking & Excavating Contractors, Inc., B-290732, Sept. 25, 2002, 2002 CPD para. 169 at 3. A protester’s mere disagreement with the agency’s judgment in its evaluation of offerors’ proposals does not establish that the evaluation was unreasonable. C. Lawrence Constr. Co., Inc., B-287066, Mar. 30, 2001, 2001 CPD para. 70 at 4.

Here, the protester does not dispute that the agency did not have the teaming agreement during the course of the procurement, nor does the protester argue that the teaming agreement was required to be provided as part of Skyline’s proposal. The agreement simply was not part of the agency’s evaluation and selection decisions.

In any event, we also disagree with WHG’s view that the teaming agreement shows that Skyline will act as Sterling’s subcontractor for this procurement. The stated purpose of the teaming agreement is to allow Skyline to utilize Sterling’s GSA schedule contract. To the extent that the teaming agreement states that Skyline will be a subcontractor to Sterling, we think it is only within the context of Sterling’s FSS contract. In this regard, the teaming agreement does not mention any specific solicitations or contracts, but instead provides for a general arrangement wherein Skyline may perform work under Sterling’s schedule contract. Moreover, this approach was sanctioned by the RFP, which stated that a prime contractor could utilize a subcontractor’s FSS contract in performing the contract, provided that “all services provided must be within the scope of the team’s respective schedules.” RFP amend. 3, at 6.

In sum, we think that the Army reasonably concluded that, under the terms of its proposal, Skyline was the prime contractor for this procurement, and was therefore entitled under the terms of the RFP to receive credit as an SDVOSB offeror.  (Washington-Harris Group, B-401794; B-401794.2, November 16, 2009)  (pdf)


On June 5, MCS submitted a protest to the contracting officer alleging that DAV Prime JV was not a SDVOSBC and was thus ineligible for award. The agency forwarded MCS’s status protest to the SBA. MCS’s protest was accepted by the SBA on June 19. The SBA notified MCS and the agency on June 26 that it had received the timely filed protest. Upon receiving the SBA’s notice, the agency chose to allow DAV Prime JV to continue performance under the protested contract.

The SBA Director of Government Contracting sustained MCS’s protest on July 15, finding that DAV Prime did not meet the eligibility requirements of a SDVOSBC, and therefore, the joint venture of DAV Prime and Vantex Service failed to qualify as a SDVOSBC. The SBA decision stated that both DAV Prime and DAV Prime JV were ineligible to receive an award under the current RFQ and both were prohibited from submitting offers on future SDVOSBC procurements. After receiving notice of the decision, MCS contacted the contracting officer to determine the status of the award given the SBA’s findings. The contract officer informed MCS on July 21 that he would not make any decision until DAV Prime JV “forego(s) appeal or an appeal decision is made.” AR, Tab 13, Email Correspondence.

On July 25, DAV Prime JV appealed the decision of the SBA to the SBA’s OHA. The OHA denied DAV Prime JV’s appeal on August 15. MCS again contacted the contracting officer on September 8 to determine the status of award and was informed on September 15 that the award was not and would not be vacated. MCS filed the current protest with our Office on September 19 seeking termination of DAV Prime JV’s contract because the SBA found, and the OHA affirmed, that DAV Prime JV was not an eligible SDVOSBC.

In 2003, Congress created, by amending the Small Business Act, a procurement program for small business concerns owned and controlled by service-disabled veterans. Veterans Benefits Act of 2003, Pub. L. No. 108-183, 117 Stat. 2651, 2662 (2003), 15 U.S.C. sect. 657f (2006). Under this authority, the SBA, and not our Office or the procuring agency, is the designated authority for determining whether a firm is an eligible SDVOSBC, and it has established procedures for interested parties to challenge a firm’s status as a qualified SDVOSBC. Singleton Enters.--GMT Mech., A Joint Venture, B-310552, Jan. 10, 2008, 2008 CPD para. 16 at 3; see 15 U.S.C. sections 632(q), 657b; 13 C.F.R. sections 125.25, 125.27 (2008); FAR sections 19.307, 19.1403.

Many of MCS’s arguments concern the issue of whether DAV Prime JV qualified as an SDVOSBC, which issue has been resolved by the SBA. Based on these arguments, MCS argues that the contracting officer should have investigated and questioned the joint venture’s representation that it was an SDVOSBC. However, we find nothing that would have required the contracting officer to investigate or question DAV Prime JV’s representation before making award.

MCS has also asserted that the Army should have terminated the contract upon receiving the SBA’s and the OHA’s decisions finding DAV Prime JV ineligible as an SDVOSBC joint venture. The Army, on the other hand, argues that in accordance with the SBA’s regulations it was not required to terminate the contract. The SBA, whose views we solicited, agrees with the Army.

The SBA’s regulations regarding SDVOSBC protests describes the effect of an SBA determination on SDVOSBC status as follows:

Effect of determination. SBA’s determination is effective immediately and is final unless overturned by OHA on appeal. If SBA sustains the protest, and the contract has not yet been awarded, then the protested concern is ineligible for an SDVO SBC contract award. If a contract has already been awarded, and SBA sustains the protest, then the contracting officer cannot count the award as an award to an SDVO SBC and the concern cannot submit another offer as an SDVO SBC on a future SDVO SBC procurement unless it overcomes the reasons for the protest.

13 C.F.R. sect. 125.27(g). The regulation thus explicitly differentiates between a determination’s effect when issued before versus after award and, as we have previously found, we think a fair reading of this regulation is that there is no requirement that a contract be terminated if an awardee is found to be other than an SDVOSBC after award was made. Veteran Enter. Tech. Servs., LLC, B‑298201.2, July 13, 2006, 2006 CPD para. 108 at 3. Indeed, the SBA states that its regulations “do not, under any circumstances, require a procuring activity to terminate or even suspend an award made to an entity that is subsequently determined to not be SDVO SBC eligible,” although the Army “may certainly be subject to moral suasion” to do so. SBA Report at 3.  (Major Contracting Services, Inc., B-400616, November 20, 2008)  (pdf)


DAV Prime, Inc., a service-disabled veteran-owned small business concern (SDVOSBC) protests the terms of solicitation No. AG-024B-S-07-0005, issued by the Department of Agriculture, U.S. Forest Service, for portable latrines. DAV argues that this work should have been reserved for SDVOSB companies. It contends a set-aside is required because the agency has violated the Small Business Act, as amended by sect. 36 of the Veterans Benefits Act of 2003, Pub. L. No. 108-183, 117 Stat. 2651, 2662 (2003), 15 U.S.C. sect. 657f (Supp. IV 2004), by failing to meet its stated goal of awarding 3 percent of its annual contracts to SDVOSBCs, and by failing to conduct a market survey to determine whether an SDVOSBC set-aside is appropriate. Protest at 2; Response to Motion to Dismiss at 1.  We dismiss the protest because it does not establish a valid basis for challenging the agency’s action.

Section 36 of the Veterans Benefits Act of 2003 provides:

In accordance with this section, a contracting officer may award contracts on the basis of competition restricted to [SDVOSBCs] if the contracting officer has a reasonable expectation that not less than 2 [SDVOSBCs] will submit offers and that the award can be made at a fair market price. 15 U.S.C. sect. 657f(b).

In our view, the language of the Act is clearly discretionary. As such, it permits, but does not require, a contracting officer to restrict competition to SDVOSBCs if certain conditions are satisfied. (DAV Prime, Inc., B-311420, May 1, 2008) (pdf)


As discussed in Singleton Enters. -- GMT Mech., A Joint Venture, supra, at 4, Federal Acquisition Regulation sect. 19.307(h) and 13 C.F.R. sect. 125.24(b) provide for the SBA’s resolution of questions of SDVOSBC status and for an agency procedure to protest a firm’s SDVOSBC status to the SBA. Consistent with the SBA’s regulations, 13 C.F.R. sect. 125.27(g) and 125.28 (2007), the SBA’s February 20 determination that Singleton-GMT JV is not an SDVOSBC expressly stated that the determination was effective “immediately” and was “final” unless overturned on appeal or unless relief was granted under 13 C.F.R. sect. 125.27(g) (e.g., a change in ownership to satisfy the SDVOSBC definition), and that because of this determination the joint venture was ineligible to bid on or receive any SDVOSBC contract awards. VA Dismissal Request, exh. 4, SBA’s SDVOSBC Determination. According to the SBA, given that the OHA has affirmed the SBA’s determination, before Singleton-GMT JV can bid on or receive SDVOSBC contracts, the joint venture must request that SBA grant it relief under 13 C.F.R. sect. 125.27(g), and prove that it merits such relief by documenting the actions it has taken to address those problems with its eligibility that were identified by SBA. If the SBA agrees that the firm qualifies as an SDVOSBC, then the agency will grant relief under 13 C.F.R. sect. 125.25(g) and issue a new determination letter to the firm stating that it qualifies as an SDVOSBC and that it is eligible to bid on and receive SDVOSBC contracts. To date Singleton-GMT JV has not requested, and SBA has not granted, relief from that decision under 13 C.F.R. sect. 125.27(g).  Singleton-GMT JV also contends that the OHA decision affirming the SBA’s determination that the joint venture is not an SDVOSBC was not yet final but, under 13 C.F.R. sect. 227(a), was only the OHA’s initial decision and could not be final for 30 days. Thus, the protester contends, the VA cannot rely upon the SBA’s and OHA’s determinations to reject Singleton-GMT JV’s bid. However, as noted by the SBA, OHA’s rulings on appeal are effective immediately, and are final, unless or until the judge chooses to reconsider the ruling; in fact the OHA’s decision states that “[t]his is the final decision of the Small Business Administration.” VA Submission (Mar. 27, 2007), attach., SBA OHA Decision (Mar. 27, 2007) at 8.  Because the SBA’s February 20 determination that Singleton-GMT JV was not an SDVOSBC has remained in force and effect, the VA properly rejected Singleton-GMT JV’s bid.  (Singleton Enterprises- GMT Mechanical, A Joint Venture, B-311343, April 23, 2008) (pdf)


The protester essentially objects to the sole-source award to VPM primarily because VPM had been previously determined by the SBA to be other than a small business concern. The protester argues that the agency erred in contracting with VPM on a sole-source basis without taking into consideration the favorable performance it provided on the incumbent contract. The protester also points to the VA’s hiring of VPM’s former project manager to assist with the performance transition from VPM to In and Out, and maintains that this employee contributed to the protester’s performance problems and influenced the agency’s decision to contract with VPM on a sole-source basis.  The agency asserts that it was within its authority to award the contract to VPM on a sole-source basis. We agree. The VA’s statutory authority to make sole-source awards to SDVOSBs is set forth at 38 U.S.C. sect. 8127, Pub. L. No. 109-461, 120 Stat. 3431, 3432 (2006). This authority allows the VA to award to an SDVOSB on a sole-source basis when:

(1) such concern is determined to be a responsible source with respect to performance of such contract opportunity;

(2) the anticipated award price of the contract (including options) will exceed the simplified acquisition threshold (as defined in section 4 of the Office of Federal Procurement Policy Act (41 U.S.C. 403) but will not exceed $5,000,000; and

(3) in the estimation of the contracting officer, the contract award can be made at a fair and reasonable price that offers best value to the United States.

As explained above, VPM was re-certified as a small business concern by the SBA on October 4, 2007. Agency Report (AR) Tab 4, SBA Size Determination. In addition, the agency reports that VPM is currently registered as an SDVOSB. AR, Tab 8, Sole Source Justification, at 3. In accordance with the statute, the CO determined that VPM was a responsible source, that the anticipated award price plus options was more than the simplified acquisition threshold but less than $5,000,000, and that award would be made at a fair and reasonable price. AR, Tab 1, CO’s Statement at 2 and 3. Moreover, the agency disagrees with In and Out’s favorable assessment of its past performance; in fact, the CO’s decision to use this authority was also based expressly on the fact that the agency was not satisfied with the protester’s performance. Id.  Based on our review, we think the record shows that in making her decision to award a sole-source contract to VPM, the CO’s decision was in accord with the statute authorizing the award of sole-source contracts to SDVOSBs. Despite In and Out’s desire to compete for this contract--given its similar status as an SDVOSB--we see no requirement, under this statute and under these circumstances, for even a limited competition. (In and Out Valet Co., B-311141, April 3, 2008) (pdf)


Under the SDVOSBC procurement program, a contracting officer may restrict competition to SDVOSBCs if he or she has a reasonable expectation that not fewer than two such firms will submit offers and that the award can be made at a fair market price. 15 U.S.C. sect. 657f(b) (Supp. IV 2004); Federal Acquisition Regulation (FAR) sect. 19.1405(a), (b). Prior to proceeding with a small business set-aside, a procuring agency is required to make reasonable efforts to ascertain whether an SDVOSBC set-aside is appropriate. MCS Portable Restroom Serv., B‑299291, Mar. 28, 2007, 2007 CPD para. 55 at 5. Although the use of any particular method of assessing the availability of firms for a set-aside is not required, measures such as prior procurement history, market surveys, and advice from the agency’s small business specialist may all constitute adequate grounds for a contracting officer’s decision to set aside, or not to set aside, a procurement. National Linen Serv., B-285458, Aug. 22, 2000, 2000 CPD para. 138 at 2. Generally, our Office regards such a determination as a matter of business judgment that we will not disturb absent a clear showing that it has been abused. Id.

IBV asserts that the contracting officer did not make a reasonable effort to ascertain whether an SDVOSBC set-aside was suitable. This argument is without merit. While the record shows that at least two SDVOSBC firms were available and interested in competing on this requirement, this is only the first of two considerations that go into a set-aside decision. In addition, the contracting officer must have a reasonable expectation that award will be made at a fair market price. 15 U.S.C. sect. 657f(b); FAR sect. 19.1405(a), (b). Here, as noted above, the contracting officer did not set the requirement aside because she did not expect to receive fair market prices from SDVOSBCs, and there is nothing in the record to demonstrate that her expectations were unreasonable. In this regard, while IBV disagrees with her decision, it has not provided any evidence that it and at least one other SDVOSBC would or could have provided fair market prices. IBV’s mere disagreement with the agency’s assessment does not demonstrate that the agency’s judgment was unreasonable. Bahan Dennis Inc., B-249496.3, Mar. 3, 1994, 94-1 CPD para. 184 at 5. Moreover, even if we agreed with IBV that the set-aside determination was not adequately supported at the time it was made, we would not object to the determination under the circumstances here. In this regard, while the agency received multiple proposals from SDVOSBCs, the contracting officer’s concern that they would not propose fair market pricing was confirmed by the pricing of those proposals; all of the SDVOSBC proposals received were priced at more than double the independent government estimate, and all exceeded the RFP’s estimated price range. Further, IBV’s price was the highest of all proposals received, including those of the other SDVOSBCs, and was more than double the prices of the three lowest‑priced non-SDVOSBC small business proposals. Agency Report at 30. Under these circumstances, the agency’s set-aside decision was reasonable. See The Atlantic Co. of Am., Inc., B‑293974, July 1, 2004, 2004 CPD para. 182 at 2 (GAO will consider proposals actually received in determining whether set-aside decision was reasonable (HUBZone set-aside)); York Int’l Corp., B‑244748, Sept. 30, 1991, 91‑2 CPD para. 282 at 7 (small business set-aside); Litton Electron Devices, B‑225012, Feb. 13, 1987, 87-1 CPD para. 164 at 2-3 (small business set-aside).  We reach the same conclusion with regard to IBV’s assertion that the agency should have considered awarding it a contract on a sole-source basis. While an agency may make a sole-source award to an SDVOSBC, four conditions must be met: only one SDVOSBC can satisfy the requirement; where, as here, the requirement falls under a nonmanufacturing NAICS code, the anticipated award price will not exceed $3 million; the SDVOSBC has been determined responsible with respect to performance; and award can be made at a fair and reasonable price. FAR sect. 19.406. Three of the four provisions are not met here. The record shows that there are multiple SDVOSBCs available to compete; the anticipated award exceeds the $3 million limit; and, as discussed above, award could not be made to an SDVOSBC at a fair market price. Accordingly, the contracting officer reasonably did not consider IBV for a sole-source award.  (IBV, Ltd., B-311244, February 21, 2008) (pdf)

Comptroller General - Listing of Decisions

For the Government

For the Protester

Walker Development & Trading Group, Inc. B-414365: May 18, 2017 Spur Design, LLC B-412245.3: Feb 24, 2016  (pdf)
AeroSage LLC B-414314, B-414314.2: May 5, 2017 Phoenix Environmental Design Inc., B-407104, Oct 26, 2012  (pdf)
Fiskars Brands, Inc., dba Gerber Legendary Blades B-412730, B-412730.2: May 20, 2016  (pdf) Aldevra, B-406774; B-406857; B-406892; B-406912; B-406913; B-406927; B-406928; B-406942, August 21, 2012  (pdf)
Fire Risk Management, Inc. B-411552: Aug 20, 2015  (pdf) Aldevra, B-406608, B-406654, B-406655, B-406656, Jul 13, 2012  (pdf)
In and Out Valet Company B-411019: Apr 15, 2015  (pdf) Kingdomware Technologies, B-406507, May 30, 2012  (pdf)  Also see Kingdomware Techs., Inc. v. United States, No 13-5042, June 3, 2014 and Kingdomware Technologies, B-406507, May 30, 2012  (pdf))
Crosstown Courier Service, Inc. B-410936: Mar 12, 2015  (pdf) Aldevra, B-406331, B-406391, Apr 23, 2012  (pdf)
Starlight Corporation, Inc., B-410471.2: Dec 30, 2014  (pdf) Crosstown Courier Service, Inc., B-406262, Mar 21, 2012  (pdf)
Charlie Mike Prosthetics; Half Milers Rule, LLC, B-409389, B-409389.2: Mar 10, 2014  (pdf) Aldevra, B-406205, Mar 14, 2012 (pdf)
Kingdomware Technologies--Reconsideration, B-407232.2, Dec 13, 2012  (pdf) Kingdomware Technologies, B-405727, December 19, 2011  (pdf)
Crosstown Courier Service, Inc., B-407404, Nov 30, 2012  (pdf) Aldevra, B-405271; B-405524, October 11, 2011 (pdf)
Crosstown Courier Service, Inc., B-406336, Apr 23, 2012  (pdf) Powerhouse Design Architects & Engineers, Ltd., B-403174; B-403175; B-403176; B-403177; B-403633; B-403647; B-403648; B-403649, October 7, 2010 (pdf)
American Medical Response, B-406274, Mar 16, 2012  (pdf)  
Kevcon, Inc., B-406101, B-406101.2, B-406101.3, Feb 6, 2012  (pdf)  
Alternative Contracting Enterprises, LLC; Pierce First Medical, B-406265, B-406266, B-406291, B-406291.2, B-406318.1, B-406318.2, B-406343, B-406356, B-406357, B-406369, B-406371, B-406374, B-406400, B-406404, B-406428, Mar 26, 2012  (pdf)  
Encompass Group, LLC, B-406346, Mar 23, 2012  (pdf)  
MICCI Imaging Construction Company, Inc., B-405654, November 28, 2011  (pdf)  
Kingdomware Technologies, Inc., B-405533.2, November 10, 2011  (pdf)  
Crosstown Courier Service, Inc., B-405492, B-405493, November 8, 2011  (pdf)  
FedCon RKR JV LLC, B-405257, October 4, 2011  (pdf)  
Pro South-Emcon, a Joint Venture, B-405267; B-405268, August 18, 2011  (pdf)  
A1 Procurement, JVG, B-404618.3, July 26, 2011 (pdf)  
Buy Rite Transport, B-403729; B-403768, October 15, 2010 (pdf)  
Combined Effort, Inc., B-402573, June 4, 2010 (pdf)  
Corners Construction, B-402465, April 23, 2010  (pdf)  
Apex Limited, Inc., B-402163,January 21, 2010  (pdf)  
Washington-Harris Group, B-401794; B-401794.2, November 16, 2009  (pdf)  
Major Contracting Services, Inc., B-400616, November 20, 2008  (pdf)  
DAV Prime, Inc., B-311420, May 1, 2008 (pdf)  
Singleton Enterprises- GMT Mechanical, A Joint Venture, B-311343, April 23, 2008 (pdf)  (Singleton 2)  
In and Out Valet Co., B-311141, April 3, 2008 (pdf)  
IBV, Ltd., B-311244, February 21, 2008 (pdf)  
Singleton Enterprises-GMT Mechanical, A Joint Venture, B-310552,  January 10, 2008. (pdf)  (Singleton 1)  

U. S. Court of Federal Claims - Key Excerpts

New B. The VA is Required to Conduct a Rule of Two analysis for New Contracts Regardless of when the VISN was Added to the Procurement List

Turning to the merits of the parties’ dispute the court finds the issue to be decided is correctly stated by the plaintiff. The plaintiff phrases its understanding of the issue remaining in this case as "[w]hether the VA must apply the (Veterans Benefits Act of 2006) VBA Rule of Two prior to making new contracting determinations, including contract awards, as indicated in Kingdomware Technologies, Inc. v. United States, 136 S. Ct. 1969 (2016), for products and services currently listed on the Procurement List for VA facilities located in [Veterans Integrated Service Network] VISN 2 and VISN 7, which were added to the Procurement List prior to January 7, 2010." Pl.’s Supp. Brief at 2. The government phrases its understanding slightly differently: "Whether the VA reasonably interpreted the [VBA] of 2006 when it identified the pre-VBA List additions of VISN 2 and VISN 7 as mandatory sources and awarded two contracts to [IFB] without applying the Rule of Two." Def.’s Supp. Brief at 2. The court finds that the government misstates the issue at hand and that the plaintiff’s statement of the issue is correct. The question before the court is not whether the VA was wrong to award the initial contract to IFB, but whether, after passage of the VBA in 2006, the VA was required to perform a Rule of Two analysis before treating the AbilityOne List as a mandatory source for any new contracts. The court finds that the VBA requires the VA to perform the Rule of Two analysis for all new procurements for eyewear, whether or not the product or service appears on the AbilityOne List, because the preference for veterans is the VA’s first priority. If the Rule of Two analysis does not demonstrate that there are two qualified veteran-owned small businesses willing to perform the contract, the VA is then required to use the AbilityOne List as a mandatory source.

The defendants argue that the JWOD and the VBA are not directly in conflict. Further, defendants argue that the VA’s solution, as expressed in its new guidelines, which gives effect to both statutes by requiring the VA to perform a Rule of Two analysis for all procurements except for products and services that were put on the AbilityOne List before 2010 should be upheld. According to the government, neither the VBA nor the JWOD express a priority for competitive awards, and therefore, the VA’s construction of the two statutes should be afforded deference under the Supreme Court’s decision in Chevron. The government argues that Congress did not “unambiguously express[] a priority for veteran-owned small businesses over mandatory sources identified on the procurement list,” Def.’s MJAR 21. Therefore, the government argues, “the VA is being required to apply two statutory mandates that Congress did not prioritize expressly, this Court should defer to the VA’s reasonable construction of the Veterans Benefit Act.” Id. at 23.

The court agrees that the VBA and the JWOD are not necessarily in conflict in all instances. However, the VA can necessarily only follow one of the statutes first when a product or service appears on the AbilityOne List. In that connection, the court must decide whether the VA’s decision to exclude pre-2010 AbilityOne listed items from any VBA reevaluation after enactment of the VBA is lawful. The court finds that the statutory language of the VBA, as explicated by the Supreme Court in Kingdomware, establishes a preference for veteran-owned small businesses as the VA’s first priority. As the Supreme Court stated in Chevron, if a statute is clear, the court must “give effect to the unambiguously expressed intent of Congress.” 467 U.S. at 843. The statute is interpreted “employing traditional tools of statutory construction.” Id. at 843 n.9. If “the statutory language is unambiguous and ‘the statutory scheme is coherent and consistent . . . the inquiry ceases.’” Kingdomware, 136 S. Ct. at 1976 (quoting Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450 (2002)).

Under the VBA, the VA must perform a Rule of Two inquiry that favors veteran-owned small businesses and service-disabled veteran-owned small businesses “in all contracting before using competitive procedures” and limit competition to veteran-owned small businesses when the Rule of Two is satisfied. Id. at 1977. The VBA states that, except for certain inapplicable exceptions:

[A] contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.

38 U.S.C. § 8127(d). The VBA also states that

In procuring goods and services pursuant to a contracting preference under this title or any other provision of law, the Secretary shall give priority to a small business concern owned and controlled by veterans, if such business concern also meets the requirements of that contracting preference.

38 U.S.C. § 8128(a). Based on this language, the Supreme Court found in Kingdomware that § 8127(d) was mandatory, and therefore “before contracting with a non-veteran-owned business, the Department must first apply the Rule of Two.” 136 S. Ct. at 1977. The court found that the mandatory nature of the VBA “demonstrates that § 8127(d) mandates the use of the Rule of Two in all contracting before using competitive procedures.” Id. at 1977 (emphasis added).

IFB argues that under the language of the VBA the JWOD can be reasonably interpreted as taking priority because the VBA only applies to competitive procurements, and that procurements under the JWOD are not “competitive” procurements. The court finds, however, that IFB’s reading of the VBA is contrary to the Supreme Court’s holding in Kingdomware, which expressly held that the Rule of Two was “mandatory, not discretionary,” and that it thus covered the non-competitive procurements authorized under the FSS. See 136 S. Ct. at 1976. In this connection, the Supreme Court expressly noted that the VBA contained “no exceptions for orders from the FSS system.” Id. at 1977. Importantly, like the FFS, the VBA also does not contain an exception for obtaining goods and services under the AbilityOne program. Indeed, the court finds it significant that an earlier version of the 2006 VBA, the Veterans Benefit Act of 2003, contained an explicit exception for contracts under the JWOD which was eliminated in the final legislation. See Pub. L. No. 108–183 § 308, December 16, 2003, 117 Stat. 2651 (“A procurement may not be made from a source on the basis of a preference provided under subsection (a) or (b) if the procurement would otherwise be made from a different source under section 4124 or 4125 of title 18, United States Code, or the Javits–Wagner–O’Day Act”). The fact that Congress did not include this exception in the 2006 enactment strongly indicates that Congress meant for the VBA to apply before the VA was required to turn to the AbilityOne List under the JWOD. It is well settled, “[w]here Congress includes language in an earlier version of a bill but deletes it prior to enactment, it may be presumed that the [omitted text] was not intended.” Russello v. United States, 464 U.S. 16, 23-24 (1983).

Further, because the VBA is a more specific than the JWOD statute in that it applies only to the VA for all of its procurements, the VBA must be read to take precedence over the JWOD. See Arzio v. Shinseki, 602 F.3d 1343, 1347 (Fed. Cir. 2010) (citing Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384 (1992)) (“A basic tenet of statutory construction is that a specific statute takes precedence over a more general one.”). This conclusion was stated in Angelica Textiles as follows:

The Veterans Benefits Act is a specific mandate to the Department…to grant first priority to [service-disabled veteran-owned small businesses] and [veteran-owned small businesses] in the awarding of contracts. On the other hand, the Javits-Wagner-O’Day Act is a more general procurement statute. Were there a conflict between the two statutes, the more specific Veterans Benefits Act would control.

Angelica Textiles, 95 Fed. Cl. at 222. This court agrees with the Angelica Textile court’s reading of the statutes and thus finds that the VA has a legal obligation to perform a Rule of Two analysis under the VBA when it seeks to procure eyewear in 2017 for VISNs 2 and 7 that have not gone through such analysis- even though the items were placed on the AbilityOne List before enactment of the VBA. The VA’s position that items added to the List prior to 2010 are forever excepted from the VBA’s requirements is contrary to the VBA statute no matter how many contracts are issued or renewed.

(Sections deleted)

IV. CONCLUSION

For the reasons stated above, IFB and the government’s motions to dismiss under RCFC 12(b)(1) and motion for judgment on the administrative record are DENIED. PDS’s cross-motion for judgment on the administrative record is GRANTED. The VA is ordered not to enter into any new contracts for eyewear in VISNs 2 and 7 from the AbilityOne List unless it first performs a Rule of Two analysis and determines that there are not two or more qualified veteran-owned small businesses capable of performing the contracts at a fair price.

The parties shall have until Friday, May 26, 2017 to submit a joint proposed judgment that shall include the expiration dates of all active contracts in VISNs 2 and 7 under the AbilityOne program, and shall include a timeline of the VA’s plan to conduct a Rule of Two analysis for any further contracts.  (PDS Consultants, Inc. v. U. S. and Winston-Salem Industries for the Blind, No. 16-1063C, May 30, 2017)


1. Kingdomware Technologies, Inc. v Unites States does not Establish that Task Orders are Contracts as a Matter of Law.

As a preliminary issue, the Court must address whether a recent Supreme Court decision found that task orders are contracts as a matter of law. Kingdomware Technologies, Inc. v. United States, 136 S.Ct. 1969 (2016). GSE argues that it does and, thus, easily resolves this case. Pl.’s Mot. at 16 (“[T]he United States Supreme Court has ruled that task orders are contracts [and] it is incorrect as a matter of law and indefensible for NASA to contend that the task orders GSE performed . . . on an IDIQ contract are not contracts.”). However, GSE misreads the holding in Kingdomware.

In Kingdomware, the Supreme Court held that orders issued by the Department of Veteran Affairs under the GSA Federal Supply Schedule (“FSS”) constitute contracts for purposes of compliance with the Veterans Benefits, Health Care, and Information Technology Act of 2006. 136 S.Ct. at 1978-79; 38 U.S.C. § 8127. The FSS allows an agency to acquire supplies or services in bulk indefinitely over a period of time, without undergoing a cumbersome bidding process for each individual order. Kingdomware, 136 S.Ct. at 1974. Agencies receive a list of available items on the FSS and when an agency wishes to acquire a good or service, the agency simply produces an FSS order and sends it to the contractor. Id. Since an FSS order creates obligations to pay for and deliver goods between the agency and the contractor, an FSS task order is a contract under the Act. Kingdomware, 136 S.Ct. at 1978. The Supreme Court further held that the agency’s interpretation did not warrant deference because a statute, not an agency decision, was the subject of interpretation. Id. at 1979.

The protest currently before the Court does not involve an FSS order and NASA is not subject to the Act at issue in Kingdomware. The interpretative issue in this case involves a solicitation, not a statutory provision. GSE does not assert that each of its task orders produced new contractual obligations between the firm and NASA. In short, Kingdomware is not dispositive. Kingdomware does not stand for the general proposition that all task orders are considered contracts as a matter of law. (Great Southern Engineering, Inc. v. U. S. and  K.S. Ware & Associates, LLC, No. 16-975C, November 4, 2016)


B. The Agency’s Decision not to Waive the “Non-Manufacturer” Rule and Issue this Procurement as a SDVOSB Set-Aside was not an Abuse of Discretion.

At the heart of this protest is plaintiffs’ contention that the agency erred by not setting aside the procurement for [service disabled veteran-owned small business] SDVOSBs. A CO is required to set aside a procurement for small businesses, with SDVOSBs receiving first priority if the CO has a “reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price . . . .” 38 U.S.C. § 8127(d), see id. at § 8127(i) (giving first priority to SDVOSBs). The CO is required to conduct market research to determine if there are qualifying firms that meet certain socioeconomic criteria capable of satisfying the agency’s needs. FAR 19.203(d)(1).

In order to qualify for a set-aside, a small business must either manufacture the goods it will provide or distribute good manufactured by another qualifying small business. FAR § 19.102(f)(1); 15 U.S.C. § 637(a)(17)(B)(iv) (a non-manufacturer may receive the benefit of a set-aside procurement if it “represent[s] that it will supply the product of a domestic small business manufacturer or processor, unless a waiver of such requirement is granted”); see FAR § 819.7003(d) (SDVOSBs “must meet the requirements in [FAR §] 19.102(f) to receive a benefit under” a set-aside procurement). A CO “may request a waiver” from the SBA of the “non-manufacturer rule . . . if no known domestic small business manufacturers or processors can reasonably be expected to offer a product meeting the requirements of the solicitation.” FAR § 19.102(f)(5).

The plaintiffs acknowledge that the agency would have had to obtain a waiver of the non-manufacturer rule from the SBA in order for plaintiffs to be eligible to participate under a SDVOSB set aside. However, the plaintiffs maintained in their brief that the agency was required to seek a waiver because there were at least two SDVOSB distributors who had expressed interest in performing the contract. At oral argument, the plaintiffs acknowledged that this construction would effectively eliminate the non-manufacturer rule, but argued that the CO was nevertheless required to seek a waiver where, as here, similar contracts had been performed by SDVOSBs in the past, and the agency’s Office of Small and Disadvantaged Business Utilization (“OSDBU”) recommended that the procurement be set aside for SDVOSBs.

The government counters, and the court agrees, that the CO did all that was required of her under the FAR and was not required to seek a waiver of the non-manufacturer rule. The court finds that plaintiffs’ reading of the FAR, which would require a CO to seek a waiver practically any time at least two responsible small distributors were likely to bid on the contract, would essentially obviate the non-manufacturer rule. As this court has noted, the non-manufacturer rule serves an important policy purpose:

The clear purpose of the non-manufacturer rule is “to prevent brokerage-type arrangements whereby small ‘front’ organizations are set up to bid [on] government contracts but furnish the supplies of a large concern.” The rules serves, in other words, “to prevent dealers from acting as mere conduits for the products of large manufacturers on small business set-aside procurements.”

Rotech Healthcare Inc. v. United States, 118 Fed. Cl. 408, 414 (2014) (quoting Rotech v. United States, 71 Fed. Cl. 393, 412 (2006)). The court does not suggest that either of the plaintiffs are such a “front” organization; nevertheless, the structure and purpose of the non-manufacture rule demonstrates that the rule was meant to be the default and a waiver the exception, not the other way around.

Though the FAR does not define the breadth of the agency’s discretion in deciding not to seek a waiver, the GAO has found that the decision is afforded significant deference:

Whether an agency seeks a waiver of such a requirement is more than simply a matter of “business judgment.” An agency’s decision to seek, or not to seek, such a waiver from the SBA is more in the nature of a programmatic decision rather than a business judgment decision. It is essentially a decision not to set-aside the procurement for purchase under the 8(a) program. In the absence of any hint of a corrupt or unscrupulous motive in the respondent's decision not to seek a waiver of the nonmanufacturer rule, there is no basis upon which we could question the agency’s decision on this issue.

Data Equip., Inc., GSBCA No. 12506-P, 94-1 B.C.A. (CCH) ¶ 26446 (Sept. 28, 1993).

The court need not decide whether a CO has unfettered discretion to decide not to seek a waiver, but finds that under the circumstances presented in this case, the CO clearly did not abuse her discretion. The CO did extensive market research and reasonably concluded that the agency was not likely to receive at least two offers from qualified small business manufacturers. See AR 578-92. The record demonstrates that the CO then considered seeking a waiver, but decided instead to allow for open competition under an evaluation scheme which provided more favorable ratings to socioeconomic small businesses, including SDVOSBs. AR 592. The court therefore finds that the CO’s decision in this case was not in conflict with the agency’s obligation to consider its socioeconomic goals in conducting procurements.  (Geo-Med, LLC v. U. S. and Manus Medical, LLC v. U. S., Nos. 16-182C & 16-183C, April 20, 2016)  (pdf)


For the reasons set forth in Precise, 120 Fed. Cl. at 594–96, (see decision directly below this one) the court may exercise jurisdiction over this dispute pursuant to 28 U.S.C. § 1491(b)(1) (2012), and will determine whether the SBA’s rulings are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” pursuant to 5 U.S.C. § 706(2)(A) (2012) and 28 U.S.C. § 1491(b)(4). Prior to remand, the parties had fully briefed cross-motions for judgment on the administrative record, see Precise, 120 Fed. Cl. at 594 n.10 (detailing pre-remand submissions at ECF Nos. 30, 32–35, 37–40), and had participated in oral argument, see Tr., Mar. 4, 2015, ECF No. 44. Following remand, the parties submitted supplemental briefs (Supp. Br.), see ECF Nos. 59–62, and supplemental responses (Supp. Resp.), see ECF Nos. 63–66. The central issue on remand remains whether the SBA['s Office of Hearings and Appeals (OHA)] erred in finding that Precise was not an eligible SDVO SBC because its Series A and Series B stock were separate “class[es] of voting stock” and the service-disabled veteran did not own “at least 51% of each class,” in violation of 13 C.F.R. § 125.9(d).

In pre- and post-remand briefing, Precise argues that Series A and Series B were merely two series within “a single class of voting stock” because, regardless of series, each share carried one vote and the shareholders voted together on substantially all issues. Pl.’s Supp. Br. 2, ECF No. 61; Pl.’s Supp. Resp. 1, ECF No. 65. Precise further contends that the OHA should have disregarded the differences between the series because the differences did not detract from, and in many ways enhanced, the service disabled veteran’s ownership and control of the company. Pl.’s Supp. Br. 2.

The government and the intervenors respond in support of the OHA rulings. Mindful of the standard of review, they argue that the rulings are not inconsistent with the SBA statute, SBA regulations, and applicable state law. Def.’s Supp. Br. 6–8, 10–13, ECF No. 62. They further argue that the facts of this case render Precision Analytical [Lab., Inc., SBA No. 384 (Nov. 4, 1991)] distinguishable. Def.’s Supp. Br. 11–12; All Points Supp. Br. 6–10, ECF No. 60; B3 Supp. Br. 9–11, ECF No. 59. The government and the intervenors contend that the OHA rationally concluded that the differences between the series were indicative of distinct “class[es] of voting stock”—a conclusion, the OHA adequately reasoned, that was supported by the plain meaning of key terms, the fact that the two series were not “functionally equivalent,” and the purpose and congressional intent behind the regulations. Def.’s Supp. Br. 4–6, 10, 13–14; All Points Supp. Br. 2–6; B3 Supp Br. 5–9.

Applying the deferential standard of review, the court finds that the OHA did not violate the law or abuse its discretion in concluding that Precise’s Series A and Series B stock were distinct “class[es] of voting stock” under the regulation. The OHA’s conclusion is not contrary to law because there has been no “clear and prejudicial violation of applicable statutes or regulations.” Centech Grp., Inc. v. United States, 554 F.3d 1029, 1037 (Fed. Cir. 2009) (quoting Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1333 (Fed. Cir. 2001)); Ceres Envtl. Servs., Inc. v. United States, 52 Fed. Cl. 23, 33 (2002) (quoting same); Stapp Towing, Inc. v. United States, 34 Fed. Cl. 300, 305 (1995). As observed earlier, the SBA statute and SBA regulations are silent as to what constitutes a class or a series, or what distinguishes a class from a series. Moreover, to the extent the OHA looked for answers in applicable state law, Maryland’s corporate code is opaque in that it lends support for both the OHA’s interpretation and Precise’s interpretation. Thus, the OHA did not err merely in adopting its own view. See Femme Comp. Inc. v. United States, 83 Fed. Cl. 704, 740 (2008) (“A protestor’s mere disagreement with an evaluation does not provide an adequate basis to overturn the agency’s decision.”); Banknote Corp. of Am. v. United States, 365 F.3d 1345, 1351 (Fed. Cir. 2004) (“A protestor must demonstrate that there was no rational basis for the agency’s determination.” (quoting Impresa Construzioni, 238 F.3d at 1332–33)).

(sections deleted)

In sum, the thrust of Precise’s argument is that since both Series A and Series B vote on the same issues, and are given essentially the same voting rights, they represent a single “class of voting stock.” Alternatively, the differences between the series in dividend rights, conversion rights, and redemption abilities are not meaningful and, therefore, can be disregarded for purposes of ownership analysis. Nothing in this opinion should be construed to hold that Precise’s interpretation is contrary to law and not itself rational and adequately reasoned. For example, the court does believe that either the regulatory histories of the 8(a) BD Program and SDVO SBC program, or Maryland law, squarely favor or preclude either side’s arguments. Likewise, the OHA could have elected to distinguish “class[es] of voting stock” based on differences in voting rights among the stock, as argued by Precise, and such an approach might itself have been rational. Indeed, had the OHA agreed with Precise and adopted Precise’s interpretation, the court might have affirmed that version of an OHA decision. But in this instance the OHA ultimately disagreed with Precise and adopted an approach at odds with Precise’s interpretation. Since the interpretation the OHA ultimately adopted was itself in accordance with law, rational, and reasoned, the court must now affirm it as well.  (Precise Systems, Inc. v. U. S. and All Points Logistics, LLC and B3 Solutions, LLC, No. 14-1174C, July 28, 2015)  (pdf)


I. Background

A. Precise’s Organizational Structure

Precise Systems, Inc. is a small business in the aviation management and engineering services industry. Compl., Dec. 5., 2014, ECF No. 1, at ¶ 9. The company incorporated in 1990 under Maryland law. Id. at ¶¶ 9, 14; see AR2 Tab 15 at 830 (Articles of Amend. & Restatement (Am. Art.), Nov. 30, 2012); Tr., Mar. 4, 2015, ECF No. 44, at 18:23–24.

Mr. John Thomas Curtis, a service-disabled veteran (SDV), was the sole owner of Precise until 2011, when he sold a minority interest in the company to an Employee Stock Ownership Plan (ESOP). Compl. ¶¶ 15–18; Curtis Aff., Jan. 22, 2015, ECF No. 30-1, at ¶¶ 2, 4. By sharing with his employees a minority interest in the company, Mr. Curtis hoped to reward his employees’ contributions to the business and to promote retention and recruitment of talented staff, see AR Tab 11 at 138 (ESOP); Compl. ¶¶ 2, 19; Curtis Aff. ¶ 4, while still preserving his majority ownership and control of the company, see Curtis Aff. ¶ 8.

(paragraph deleted)

In January 2014, when Precise responded to the solicitation at issue here, Mr. Curtis held [more than 51%] of all issued shares, and the remaining [less than 51%] of issued shares were held by the ESOP. See AR Tab 11 at 740–41. Shares were divided and distributed between Series A Common Stock and Series B Convertible Preferred Stock. AR Tab 15 at 830 (Am. Art., art. III(a)). The corporation was authorized to issue (i) up to 1.2 million shares of Series A Common, of which [more than 300,000] shares had issued and were all held by the SDV Mr. Curtis; and (ii) up to 300,000 shares of Series B Convertible Preferred Stock, of which all had issued and were held by the ESOP. Id.; Compl. ¶ 22; Tr. 7:21–24; see also Tr. 65:4–6 (“The ESOP is owned by a . . . larger number of the employees . . . .”).

Each share, regardless of series, was entitled to one vote at shareholder meetings, and “the powers, preferences[,] . . . qualifications, restrictions and limitations” of each share, regardless of series, were “identical,” “[e]xcept as otherwise provided [in the Amended Articles].” AR Tab 15 at 830 (Am. Art., art III(a)). The Amended Articles, in turn, identified distinctions between Series A and Series B stock with respect to: (1) dividend rights; (2) conversion rights; and (3) redemption rights. See, generally, id. at 830–35.

(sections deleted)

Four unsuccessful offerors filed protests with the contracting officer. (sentences deleted)  The contracting officer forwarded the protests to the SBA’s Acting Director of Government Contracting (AD/GC) for review.

(sections deleted)

Mr. Curtis’ purported lack of ownership and control led the AD/GC to determine that Precise was not a SDVO SBC [small businesss concern] at the time of its offer, and therefore was not eligible to bid on either the protested solicitation or on any future solicitations set aside for SDVO SBCs. Id.

(sections deleted)

[Precise appealed the AD/GC decision to SBA's Office of Hearings and Appeals [OHA].  Because the SBA's Office of Hearings and Appeals could find “no clear error” in the AD/GC’s reasoning or conclusion that Precise’s service-disabled veteran, Mr. Curtis, lacked sufficient ownership to satisfy 13 C.F.R. § 125.9, it affirmed the AD/GC’s determination that Precise was not an SDVO SBC at the time of its offer. Id. at 931–32.

(sections deleted)

The court must decide whether the OHA erred in its interpretation and application of 13 C.F.R. § 125.9(d), which requires that a SDV own, unconditionally and directly, “at least 51% of each class of voting stock” as a prerequisite to SDVO SBC status.  The OHA broadly construed “class of voting stock” and concluded that Precise’s Series A Common Stock and Series B Convertible Preferred Stock were separate classes because they were “sufficiently dissimilar” due to variations in dividend, conversion, and redemption rights. AR Tab 20 at 930–31 (OHA decision). Because Mr. Curtis only owned “at least 51%” of Series A but none of Series B, the OHA ultimately determined that Precise failed to satisfy the SDV ownership criteria imposed by § 125.9(d) and was ineligible for SDVO SBC status.

(sections deleted)

2. Application of the “Sufficiently Dissimilar” Standard to Precise

The OHA identified three variances between Series A Common Stock and Series B Convertible Preferred Stock: (i) Series B shareholders enjoyed the Preferred Dividend; (ii) Series B shareholders had a right to convert their shares, one for one, to Series A Common Stock; and (iii) the company (essentially Mr. Curtis as the majority shareholder) was empowered to vote to redeem (or buy back) the Series B shares from the ESOP, but there was no corollary preferred dividend, conversion, or redemption rights for the Series A shareholders. AR Tab 20 at 931; see also Tr. 15:15–16:1, 19:17– 20:7 (discussing same). The OHA then determined these variances were “sufficient” to render Series A and Series B separate “classes” for purposes of 13 C.F.R. § 125.9. AR Tab 20 at 931.

But the OHA offered little explanation as to why the variances were “sufficient” to conclude that Mr. Curtis (the SDV) lacked sufficient ownership rights. It appears the OHA based its sufficiency conclusion on the mere fact that the variances existed and reflected rights enjoyed or obligations suffered by Series B shareholders that were not shared equally by the SDV in his capacity as the Series A shareholder. See id. The mere existence of differences, though, says nothing of the relevance or materiality of any of the differences. See Pl.’s Reply 2.

In short, the government has neither “‘provided a coherent and reasonable explanation of its exercise of discretion’” in decertifying Precise, Impresa Construzioni, 238 F.3d at 1333 (quoting Latecoere Int’l, 19 F.3d at 1356), nor articulated a “‘a rational connection between the facts found and the choice made,’” Motor Vehicle Mfrs., 463 U.S. at 43 (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)).

V. Conclusion

For the reasons stated, the court cannot find, based on the record before it, that Precise either was or was not an eligible SDVO SBC at the time of its offer. Thus, the SBA’s OHA decision is SET ASIDE and the court REMANDS this matter to the SBA to determine, consistent with this opinion, whether Precise satisfies ownership criteria for SDVO SBC status. See Beta Analytics Int’l, Inc. v. United States, 67 Fed. Cl. 384, 395 (2005) (noting that matters of technical expertise are best left to “the special expertise of procurement officials” (citing E.W. Bliss Co. v. United States, 77 F.3d 445, 449 (Fed. Cir. 1996))). The court STAYS the parties’ motions for judgment on the administrative record, ECF Nos. 30, 32–34, for the duration of remand.

On remand, it is the SBA’s prerogative to determine whether or not it will maintain its position regarding Precise’s eligibility. In either circumstance, the SBA shall set forth its rationale for the decision with greater clarity regarding the standard for assessing eligibility and how it applies to Precise. See Mark Dunning I, 58 Fed. Cl. at 225 (citing SEC v. Chenery Corp., 332 U.S. 194, 196–97 (1947)). The court observes; that while the “SBA is the best interpreter of its own regulations,” id. (citing Lyng v. Payne, 476 U.S. 926, 939 (1986); Udall v. Tallman, 380 U.S. 1, 16 (1965)), it must offer a reasonable interpretation of them. Id. (citing Northern Ind. Pub. Serv. Co. v. Porter Cty. Chapter of Izaak Walton League, 423 U.S. 12, 16 (1975)).  (Precise Systems, Inc. v. U. S. and All Points Logistics, LLC and B3 Solutions, LLC, No. 14-1174C, April 6, 2015)  (pdf)


A. Statutory and Regulatory Framework

The procurement at issue is governed by the Veterans Benefits, Health Care, and Information Technology Act of 2006 (“Veterans Benefits Act”), Pub. L. No. 109-461, tit. V, 120 Stat. 3403, 3425 (codified at 38 U.S.C. §§ 8127-28). The Act provides in pertinent part that “[i]n procuring goods and services pursuant to a contracting preference under this title or any other provision of law,” VA “shall give priority to a small business concern owned and controlled by veterans,” provided that the business is included in a small business database maintained by VA. 38 U.S.C. § 8128. To implement this Act, the Veterans First Contracting Program (“Program”) was established in 2007, under which VA considers SDVOSB and VOSB entities as first and second priority for procurement awards.

At the Program’s commencement, SDVOSB and VOSB entities were permitted to selfcertify themselves for registration in the VetBiz VIP database. Statutory amendments found in 38 U.S.C. §§ 8127(e) and (f) now require the Secretary of VA to maintain the VetBiz VIP database, and the certification process is administered through [Center for Verification and Evaluation] CVE. See VA Acquisition Regulation: Supporting Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses, 74 Fed. Reg. 64,619-01 (Dec. 8, 2009) (codified at 48 C.F.R. Parts 802, 804, 808, 809, 810, 813, 815, 817, 819 and 852) (effective Jan. 7, 2010); 75 Fed. Reg. 6098-01 (Feb. 8, 2010) (codified at 38 C.F.R. Part 74) (effective Feb. 8, 2010).

Section 74.3 outlines the ownership requirement for a participant to receive verified status by VA, mandating that 51 percent of the entity must be “unconditionally and directly owned by one or more veterans or service-disabled veterans.” 38 C.F.R. § 74.3. Section 74.3 elaborates that 

[o]wnership must not be “subject to conditions precedent, conditions subsequent, executory agreements, voting trusts, restrictions on assignments of voting rights, or other arrangements causing or potentially causing ownership benefits to go to another (other than after death or incapacity). The pledge or encumbrance of stock or other ownership interest as collateral, including seller-financed transactions, does not affect the unconditional nature of ownership if the terms follow normal commercial practices and the owner retains control absent violations of the terms.

Id. § 74.3(b). 

Section 74.22 implements procedures to revoke certification of SDVOSB or VOSB status if “CVE believes that a participant’s verified status should be cancelled prior to the expiration of its eligibility term.” 38 C.F.R. § 74.22(a). In revocation proceedings, CVE must provide written notice to the participant, which then has thirty days to respond. Id. §§ 74.22(a), (b). Thereafter, CVE must issue a decision reciting the specific facts and reasoning that formed the basis of its decision. Id. § 74.22(c). Upon cancellation, the participant can no longer “appear as ‘verified’in the VetBiz VIP database.” Id. § 74.22(d). The participant is permitted to administratively appeal a decision by CVE to the Executive Director of OSDBU. Id. § 74.22(e).

An unsuccessful offeror in a procurement under the Veterans First Contracting Program may also file an agency-level bid protest. Pursuant to the VAAR, “a contracting officer or an interested party may protest the apparently successful offeror’s SDVOSB or VOSB status.” 48 C.F.R. § 819.307(b). CVE-approved certifications may be challenged through this route, as provided in 48 C.F.R. § 819.307. The agency protests “shall be in writing and shall state all specific grounds for the protest. Assertions that a protested concern is not a SDVOSB or VOSB concern, without setting forth specific facts or allegations, are insufficient.” Id. § 819.307(c). “The Director, CVE, will [then] determine the SDVOSB or VOSB status of the protested concern based upon the totality of circumstances within 21 business days after receipt of the status protest.” Id. § 819.307(e). In these agency-level protests, “SDVOSB and VOSB status shall be determined in accordance with 38 C[.]F[.]R[.] [P]art 74.” Id. § 819.307(a). The regulation provides that “[t]he Director, CVE, will notify the protestor and the contracting officer of the date the status protest was received by CVE and whether the status protest will be processed or dismissed for lack of timeliness or specificity.” Id. § 819.307(d) (emphasis added). Notably omitted from the regulation is any requirement that notice be given to the subject of the protest, but due process protections apply in that regard to fill the gap. See Miles, 108 Fed. Cl. at 804 (“An interpretation of 48 C.F.R. § 819.307 . . . that does not allow [for] . . . basic procedural due process is plainly erroneous and cannot be upheld.”). 

B. CVE’s and OSDBU’s Actions

AmBuild urges that CVE’s final determination and OSDBU’s denial of AmBuild’s appeal violated procedural due process because both considered issues concerning AmBuild’s unconditional ownership that were outside the scope of Welch’s protest, and AmBuild was not provided with notice and an opportunity to respond with respect to those issues. See Pl.’s Mem at 8-12. AmBuild further contends that OSDBU’s determination that AmBuild does not satisfy the unconditional ownership requirement for a SDVOSB was based on a clear error of law and constituted arbitrary or capricious agency action that prejudiced AmBuild. See id. at 17-26. 

1. Procedural due process.

AmBuild avers that CVE and OSDBU erred procedurally by sua sponte considering Mr. DeChick’s unconditional ownership under 38 C.F.R. § 74.3(b) without providing AmBuild notice of the alleged defect or an opportunity to respond. Pl.’s Mem. at 8-10.

CVE’s and OSDBU’s determination was an informal agency adjudication, governed by the “minimal [procedural] requirements” set forth in 5 U.S.C. § 555 of the APA. Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 655 (1990); see also Systems Plus, Inc. v. United States, 69 Fed. Cl. 757, 767 (2006). Section 555(b) of the APA mandates that a party has a right to be heard in an agency proceeding, absent exigent circumstances:

A party is entitled to appear in person or by or with counsel or other duly qualified representative in an agency proceeding. So far as the orderly conduct of public business permits, an interested person may appear before an agency or its responsible employees for the presentation, adjustment, or determination of an issue, request, or controversy in a proceeding, whether interlocutory, summary, or otherwise, or in connection with an agency function. 5 U.S.C. § 555(b);

see also Advanced Sys. Tech., Inc. v. United States, 69 Fed. Cl. 474, 484 (2006) (“[S]ection 555(b) is ‘universally understood to establish the right of an interested person to participate in an on-going agency proceeding.’” (quoting Block v. Securities & Exch. Comm’n, 50 F.3d 1078, 1085 (D.C. Cir. 1995))). 

As a matter of administrative law, the protections afforded by Section 555 of the APA correspond to procedural due process. See Pension Benefit, 496 U.S. at 655-56. The requirements of due process rest at the core of our nation’s Constitution and governmental institutions and are “ingrained in our national traditions and . . . designed to maintain them.” Joint Anti-Fascist Refugee Comm. v. McGrath, 341 U.S. 123, 149, 161 (1951) (Frankfurter, J., concurring). As the Supreme Court said in Wisconsin v. Constantineau, 400 U.S. 433, 436 (1971), “[i]t is significant that most of the provisions of the Bill of Rights are procedural, for it is procedure that marks much of the difference between rule by law and rule by fiat.” Thus, “[p]rocedural due process imposes constraints on governmental decisions which deprive individuals of ‘liberty’ or ‘property’ interests within the meaning of the Due Process Clause of the Fifth or Fourteenth Amendment.” Mathews v. Eldridge, 424 U.S. 319, 332 (1976). “The fundamental requirement of due process is the opportunity to be heard ‘at a meaningful time and in a meaningful manner.’” Id. at 333 (quoting Armstrong v. Manzo, 380 U.S. 545, 552 (1965); see also Henry J. Friendly, Some Kind of Hearing, 123 U. Pa. L.Rev. 1267 (1975). What that means in the realm of administrative law was succinctly described in the Final Report of the Attorney General’s Committee on Administrative Procedure in 1941:

Before adverse action is to be taken by an agency, . . . the individual immediately concerned should be apprised not only of the contemplated action with sufficient precision to permit his preparation to resist, but, before final action, he should be apprised of the evidence and contentions brought forward against him so that he may meet them. 

Joint Anit-Fascist Refugee Committee, 341 U.S. at 169 n.16 (Frankfurter, J., concurring) (quoting Final Report of the Attorney General’s Committee on Administrative Procedure, S. Doc. No. 8, 77th Cong., 1st Sess., at 62 (1941)).

In its argument, AmBuild points to this court’s decision in Miles where OSDBU’s failure in an agency protest to notify a veteran about the agency’s self-initiated examination into the veteran’s unconditional ownership contravened the procedural protections of Section 555 of the APA. Pl.’s Mem. at 8-9 (referring to Miles, 108 Fed. Cl. at 803-04). In that case, an administrative protest was filed against an apparently successful veteran offeror on control and ownership grounds because a disappointed bidder believed that the veteran and a non-veteran entity shared common ownership and control. Id. at 795-96. OSDBU rejected the grounds of the protest but nonetheless found that the veteran-owned entity did not meet unconditional ownership requirement of 38 C.F.R. § 74.3(b), based on OSDBU’s independent inquiry into the veteran-owned entity’s Operating Agreement. Id. at 796. In describing OSDBU’s sua sponte consideration of the ownership issue, the court in Miles acknowledged that OSDBU has discretion to expand the grounds of a protest beyond those raised by the protestor or the contracting officer, but ruled that the veteran must be given notice of the new inquiry. Id. at 804 (“An agency should not act without affording an entity whose award or projected award is protested with notice of an alleged defect and an opportunity to respond.”). Referring to Miles, AmBuild concedes that “courts have permitted the VA to broaden the scope of a bid protest,” but argues that “such an expansion may only be done if the protested [veteran] is given notice and an opportunity to respond.” Pl.’s Mem. in Further Support of Pl.’s Mot. for Judgment . . . and in Opp’n to Def.’s Cross-Mot. for Judgment at 4, ECF No. 18. 

&The government also cites Miles as precedent for the proposition that “OSDBU may review and decide status issues in addition to those presented by the protestor and contracting officer.” Def.’s Cross-Mot. at 13. But, to support the result in this case, the government relies on post-Miles amendments to 48 C.F.R. § 819.307 that require CVE to determine SDVOSB status based on the “totality of the circumstances.” Id. at 13-14; see 48 C.F.R. § 819.307(e) (“The Director, CVE, will determine the SDVOSB or VOSB status of the protested concern based upon the totality of circumstances within 21 business days after receipt of the status protest.”). The government relies on that regulatory text to construe the term “totality of circumstances” to expand the grounds on which CVE might act. Def.’s Cross-Mot. at 14.

When interpreting an agency regulation, the rules of statutory construction apply. Roberto v. Department of Navy, 440 F.3d 1341, 1350 (Fed. Cir. 2006) (citing Wronke v. Marsh, 787 F.2d 1569, 1574 (Fed. Cir. 1986)). Courts are instructed to examine the plain meaning of the statute or rule and “[i]f the words are unambiguous, it is likely that no further inquiry is required.” Meeks v. West, 216 F.3d 1363, 1366 (Fed. Cir. 2000). If the language is ambiguous, the court will give deference to the controlling agency’s interpretation. Id.

In this instance, it is well established that the plain meaning of “totality of circumstances” is unambiguous and simply designates a standard of review used in making a legal judgment. See, e.g., Lough v. Brunswick Corp., 103 F.3d 1517, 1519 (Fed. Cir. 1997) (recognizing that “totality of circumstances” language simply conveys “the process by which judges decide legal issues based on various facts that have been determined, utilizing the tools that judges always use, viz., the language of the statute, the purposes of the statute as indicated by legislative history, etc.”). The government’s strained construction of the amended form of 48 C.F.R. § 819.307 would convert CVE’s scope of review into a general license to act on a protest without giving notice of issues not raised by the protesting party or contracting officer but rather generated sua sponte by CVE. The requirements of procedural due process cannot be so easily cast aside. VA’s amendment of 48 C.F.R. § 819.307 in 2013 will be interpreted to establish a scope of review, but not to abrogate requirements of procedural due process.

During the agency-level protest, AmBuild did not, at a “at a meaningful time and in a meaningful manner,” Mathews, 424 U.S. at 332, have notice of, or an opportunity to be heard on, issues concerning unconditional ownership. CVE acted sua sponte without giving notice to AmBuild that it was entering upon consideration of unconditional ownership. Because that issue was never raised in Welch’s protest or by the contracting officer’s referral of the protest, AmBuild did not address its ownership structure when it was responding to Welch’s protest. Pl.’s Mem. at 10, 13. Indeed, AmBuild was entirely unaware of CVE’s self-initiated investigation until its disqualification was rendered in CVE’s determination of July 21, 2014. AR 33-255. There is no evidence in the Administrative Record to support OSDBU’s assertion that the agency afforded AmBuild any notice, let alone adequate notice, “that it was the subject of a separate [agency-initiated] status protest and [that AmBuild] was given adequate opportunity to respond and submit documentation” based on that protest. AR 36-314 to -15. 

The government alternatively advances the argument that notice of CVE’s determination and the right to appeal that decision satisfied Section 555 of the APA. Def.’s Mot. at 14-15 (“[T]he decision itself put AmBuild on notice that it did not meet the requirements contained in 38 [C.F.R.] § 74.3(b) with respect to unconditional ownership . . . . AmBuild then had the opportunity to be heard before the agency [on appeal] and to submit documentation into the record with respect to the unconditional ownership issue.”). This effort is wholly unconvincing. AmBuild’s appeal focused on the fact that CVE evaluated an outdated Operating Agreement, dating to 2011, notwithstanding that AmBuild had provided the current Operating Agreement adopted in 2014, that the 2014 Operating Agreement explicitly provided that “[t]he Company shall be managed by the Managing Member,” i.e., Mr. DeChick, and that CVE had improperly concluded that provisions contained in Section 6.3 of AmBuild’s Operating Agreement were legally distinguishable from a right-of-first-refusal provision and somehow restricted Mr. DeChick’s ownership and control. AR 35-274 to -78 (AmBuild’s Appeal); see also AR 36- 313 (Appeal Decision). On appeal, the Executive Director of OSDBU corrected CVE’s improper reliance on an outdated Operating Agreement and found that the current Operating Agreement adequately showed that Mr. DeChick indeed was the Managing Member with control over AmBuild. AR 36-315 to -16. The Executive Director, however, went further to construe provisions of the current Operating Agreement relating to “Involuntary Withdrawal.” AR 36- 317. The Executive Director pointed to events that included “being adjudicated bankrupt, having to transfer interest through a court order or operation of law, or the appointment of a trustee, receiver, or liquidator for the Member or all or any substantial part of the Member’s properties without the Member’s agreement or acquiescence.” Id. On that basis, not previously identified, the Executive Director concluded that AmBuild was not within the unconditional ownership of Mr. DeChick, the disabled-veteran 80-percent owner. AR 36-317 to -18. Consequently, the appeal did not assuage the problem of inadequate procedural due process. See Rambus Inc. v. Rea, 731 F.3d 1248, 1255-56 (Fed. Cir. 2013) (noting that “the ultimate criterion [before the court] is whether the appellant has had before the P[atent and ]T[rademark ]O[ffice] a fair opportunity to react to the thrust of the rejection” and refusing to “let the [agency] shortcut this procedure and deprive appellants of their due process rights” (internal quotation and citation omitted)); see also Miles, 108 Fed. Cl. at 805 (invalidating OSDBU’s decision to disqualify a SDVOSB where “OSDBU did not . . . notify [the plaintiff] about its self-initiated ‘unconditional ownership’ examination” before rendering a decision); Systems Plus, 69 Fed. Cl. at 767 (finding that a “[c]ontracting [o]fficer’s decision was procedurally flawed to the point that it was contrary to law” where plaintiff was not notified of the officer’s investigation into a new matter until after the disqualification decision was rendered).

In short, terminating AmBuild’s SDVOSB status without notifying or giving AmBuild the opportunity to respond to the unconditional ownership issue contravened “the minimal requirements” for an informal adjudication set forth in Section 555 of the APA. Pension Benefit, 496 U.S. at 655. 

2. Arbitrary and capricious nature of the agency’s decision.

AmBuild further avers that the agency’s decision to disqualify AmBuild as a SDVOSB and remove AmBuild from the VetBiz VIP database based on ownership clauses in its 2014 Operating Agreement was arbitrary, capricious, and contrary to law. See Pl.’s Mem. at 17-26. A SDVOSB’s ownership, as defined in 38 C.F.R. § 74.3(b), must not be subject to “conditions precedent, conditions subsequent, executory agreements, voting trusts, restrictions on assignments of voting rights, or other arrangements causing or potentially causing ownership benefits to go to another (other than after death or incapacity).” These restrictions however, are qualified by inclusion of the proviso that “[t]he pledge or encumbrance of stock or other ownership interest as collateral, including seller-financed transactions, does not affect the unconditional nature of ownership if the terms follow normal commercial practices and the owner retains control absent violations of the terms.” Id. In short, the regulation sets forth prohibited arrangements that would cause ownership benefits to vest in non-veterans, while accommodating and providing exceptions for normal commercial arrangements. 

The Executive Director of OSDBU affirmed CVE’s removal of AmBuild from the SDVOSB database on the ground that Article I, Clauses iii, v, and ix, of the 2014 Operating Agreement, relating to bankruptcy, receivership, and transfer by court order or operation of law, permitted sale of Mr. DeChick’s 80-percent majority holding of AmBuild. See AR 36-315 to -17(quoted in part supra, at 6).14 Notably, the government now recasts the basis OSDBU’s decision, relying instead on Article I, Clauses iii, vi, and ix, as proof that Mr. DeChick’s ownership was “subject to arrangements that could cause or potentially cause his ownership interests to go to another.” Def.’s Cross-Mot. at 19. The disparity between OSDBU’s reliance on Clause v and the government’s reliance on Clause vi is of no consequence because neither of those clauses abridges the ownership requirements of 38 C.F.R. § 74.3(b). Clause v addresses the transfer of ownership property only if that member “seeks, consents to, or acquiesces in the appointment of a trustee . . . [or] receiver.” AR 36-367. This clause concerns personal insolvency and will be addressed below in connection with Sections iii and ix. Clause vi recites a “reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief,” referring to a corporate entity, AR 38-367, and thus is inapplicable by its terms to Mr. DeChick as an individual. In short, Clause vi of AmBuild’s 2014 Operating Agreement provides no basis for OSDBU’s decision. 

Clause iii of the 2014 Operating Agreement provides for involuntary withdrawal in the event that “the Member is adjudged bankrupt or insolvent or there is entered against the Member an order for relief in any bankruptcy or insolvency proceeding.” AR 38-365. The government argues that personal bankruptcy does not ordinarily result in the divesture of ownership, but under the 2014 Operating Agreement, Mr. DeChick would be forced to terminate his ownership shares upon the occurrence of any type of personal bankruptcy. Def.’s Cross-Mot. at 20. That argument is inconsistent with Federal bankruptcy law. The commencement of a bankruptcy case “creates an estate” comprised of the debtor’s property. 11 U.S.C. § 541. And, under New York law, a debtor’s property subject to the bankruptcy estate includes his or her ownership rights in a limited liability company. See, e.g., In re McCormick, 381 B.R. 594, 602 (S.D.N.Y. 2008) (“Under New York’s Limited Liability Company statute, membership interest in a limited liability company is considered personal property . . . . Therefore, Debtor’s interest in the LLC became property of the estate.”); see also in re Dixie Mgmt. & Inv., Ltd. Partners, 474 B.R. 698, 701 (W.D. Ark. 2011) (“At the time the debtor filed its bankruptcy petition, it owned a 62 [percent] membership interest in [the LLC]. That interest, and any rights the debtor held under the [Operating Agreement], becomes property of the estate under § 541.”); In re Garrison-Ashburn, L.C., 253 B.R. 700, 707 (E.D. Va. 2000) (“There is no question that the economic rights, that is the membership interest, becomes property of the estate.”). Upon adjudication that the debtor is bankrupt, title to the debtor’s property becomes “vested in the trustee . . . with actual or constructive possession, and placed in the custody of the bankruptcy court.” Mueller v. Nugent, 184 U.S. 1, 14 (1902); see also Isaacs v. Hobbs Tie & Timber Co., 282 U.S. 734, 737 (1931) (“The title and right to possession of all property owned and possessed by the bankrupt vests in the trustee as of the date of the filing of the petition in bankruptcy, no matter whether situated within or without the district in which the court sits.”). The trustee, through the bankruptcy court, is empowered to “use, sell, or lease” the debtor’s property in the bankruptcy estate. 11 U.S.C. § 363; see also Irving Trust Co. v. Fleming, 73 F.2d 423, 426-27 (4th Cir. 1934) (“[I]t is the duty of the trustee, upon his appointment and qualification, to take possession of the property of the bankrupt wherever situate and administer it.”). Therefore, regardless of an owner’s rights in an Operating Agreement of a limited liability company, an adjudication of bankruptcy causes the court to have power to control the debtor’s membership interest. In the event of a personal bankruptcy adjudication, Mr. DeChick would lose control of his membership interest to the bankruptcy court regardless of the language of the 2014 Operating Agreement.15 Because the property of every business owner is automatically placed in the custody of the court upon bankruptcy, Clause iii of the 2014 Operating Agreement is a standard commercial arrangement in compliance with 38 C.F.R. § 74.3(b).

Clause ix of the 2104 Operating Agreement similarly is permissible under 38 C.F.R. § 74.3(b) because it deals with “normal commercial practices” for doing business. See Miles, 108 Fed. Cl. at 803 (holding that a right of first refusal provision in veteran’s Operating Agreement providing for the opportunity to purchase a member’s shares was not “presently executory,” but rather a “standard provision used in normal commercial dealings, and [did] not burden the veteran’s ownership interest unless he or she [chose] to sell some of his or her stake”). Clause ix provides for the transfer of ownership “on account of a court order or otherwise by operation of law.” AR 38-367. Through a court order or other operation of law mandating the transfer of ownership, Mr. DeChick would be obligated to sell his interest regardless of whether AmBuild’s Operating Agreement recited such a requirement. Clause ix describes a circumstance amounting to an “encumbrance of stock or other ownership interest,” 38 C.F.R. § 74.3(b), albeit by operation of law, that “does not affect the unconditional nature of ownership” within the meaning of the Section, id. 

Finally, the government intimates that the foregoing clauses create a condition subsequent because, upon the occurrence of any events listed as being an “Involuntary Withdrawal,” Article 6.3 of the 2014 Operating Agreement requires Mr. DeChick offer to sell his entire ownership interest to Mr. Claus and Mr. Riedinger. Def.’s Cross-Mot. at 20-21, 23; see also AR 36-317 (reciting the Executive Director of OSDBU’s finding that “Section 6.3 forces the [Member] to offer to sell his shares should any of the events listed in Article [I] occur”). Article 6.3 cannot be read in isolation, however, but rather must be interpreted in tandem with the “Involuntary Withdrawal” provisions of the Agreement. See Summerfield Hous. Ltd. P’ship v. United States, 42 Fed. Cl. 160, 166 (1998) (“A court must give reasonable meaning to all parts of the contract ‘so as to harmonize and give meaning to all its provisions,’ and not render portions of the contract meaningless.” (quoting Arizona v. United States, 575 F.2d 855, 863 (Ct. Cl. 1978)), aff’d, 217 F.3d 860 (Fed. Cir. 1999); see also Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed. Cir. 1991). Given that the “Involuntary Withdrawal” clauses do not abridge the ownership requirement under 38 C.F.R. § 74.3(b), it follows that any part of the Agreement describing the process for transferring shares upon an event of involuntary withdrawal also does not create an ownership issue for AmBuild.

In short, the government has neither “‘provided a coherent and reasonable explanation of its exercise of discretion’” in decertifying AmBuild, Impresa Construzioni, 238 F.3d at 1333 (quoting Latecoere Int’l, Inc. v. United States Dep’t of Navy, 19 F.3d 1342, 1356 (11th Cir. 1994)), nor articulated a “‘rational connection between the facts found and the choice made,’” Motor Vehicle Mfrs., 463 U.S. at 43 (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)). Accordingly, the court finds that OSDBU’s decision to decertify AmBuild and remove it from the VetBiz VIP Database was arbitrary and capricious and not in accord with VA’s regulations.  (AmBuild Company, LLC v. U. S., No. 14-786C, October 16, 2014)  (pdf)


B. OSDBU’s Action

KWV contends that [Office of Small and Disadvantaged Business Utilization] OSDBU’s decision to revoke its VOSB status was arbitrary and contrary to law because of the inconsistent application of functionally identical guidelines by [Center for Veterans Enterprise] CVE and OSDBU. See Pl.’s Mem. in Support of Mot. for Judgment on the Admin. Record (“Pl.’s Mem.”) at 19. The government responds that there is no inconsistency between the CVE and OSDBU determinations because OSDBU had access to more information than did CVE — namely, the fact that Mr. Maron spent a significant portion of each year in Florida. Def.’s Mot. for Judgment upon the Admin. Record and Resp. to Pl.’s Mot. for Judgment upon the Admin. Record (“Def.’s Cross-Mot.”) at 16.

OSDBU conducted a review which, in comparison to that performed by CVE, was perfunctory. CVE had analyzed KWV’s corporate and business documentation and conducted a site visit and an in-person interview with Mr. Maron and other employees. See AR 495-515.2 (Letter from Dan Friend to Bruce St. John (Dec. 19, 2011)); AR 1-159 (Initial Application for CVE Verification). OSDBU, however, confined its consideration to review of a paper record consisting of CVE’s result and Alares’ protest, plus Mr. Maron’s response. See Hr’g Tr. 23:8 to 24:3 (Mar. 27, 2013)

Residency is not identified as an element of “control” for purposes of Part 74. Nonetheless, OSDBU focused specifically and solely on that fact as being dispositive as a matter of law, stating that “OSDBU finds that [Mr. Maron is] unable to manage the day-to-day operations of KWV while residing in Florida.” AR 570. In its decision, OSDBU did not address any of those factors that 38 C.F.R. § 74.4 does identify as being relevant to control, viz., “strategic policy setting,” “day-to-day management and administration of business operations,” and “managerial experience of the extent and complexity needed to run the concern.” 38 C.F.R. § 74.4(b). Apart from addressing residency, OSDBU’s decision largely consists of reciting regulatory provisions of Parts 819 and 74 and Alares’ allegations. AR 568-71. OSDBU’s reliance on Mr. Maron’s residency as a basis for revoking VOSB status in effect treats that fact as requiring a decision as a matter of law, wholly apart from other factors.

As to law, OSDBU cites a decision by the Small Business Administration’s (“SBA’s”) Office of Hearings and Appeals (“OHA”). See AR 570 (citing Matter of First Capital Interiors, Inc., SBA No. VET-112, at 8, 2007 WL 2438401 (2007)). OSDBU’s reliance on this case as support for treating residency to be dispositive is misplaced. First Capital is distinguishable from the present case in several significant respects: (1) the First Capital veteran did not have prior management experience, while Mr. Maron does; (2) the First Capital veteran maintained two other jobs, while KWV is Mr. Maron’s sole business endeavor; (3) the First Capital veteran permanently resided three time zones away from the company in question, while Mr. Maron resides at all times in the same time zone, and for almost half of the year, the same state and locality, as KWV’s sole office. First Capital , 2007 WL 2438401, at *1, **7-8. Instructively, SBA in First Capital had explicitly rejected the notion that distance alone is determinative of control. Id. at *7.

In contrast to OSDBU’s approach, the CVE reviewer had addressed a range of considerations bearing on management and control. He concluded that Mr. Maron was responsible for “overseeing projects,” “came to the office as needed,” and was “always in communication” with KWV. AR 515.1-15.2 (Handwritten Notes of CVE Reviewer). Mr. Maron worked forty hours a week, whereas his non-veteran sons (whom Alares alleged to have been managing KWV in fact) were both noted as working fewer than ten hours each week for KWV. Id. In this respect, the CVE reviewer specifically noted that Mr. Maron’s son, David, had “[n]o bid involvement” and “no day-to-day management” responsibilities. AR 515.2.

Additionally, KWV’s response to the Alares protest reiterated Mr. Maron’s involvement in the day-to-day management of KWV even while he was present in Florida, citing methods of communication such as telephone, e-mail, and other electronic means. AR 538-66 (KWV’s Response to Protest). OSDBU did not take those means of communication and control into account in focusing solely on residency. During the argument on the pending motions, the government’s counsel endeavored to address this gap by noting the lack of “any evidence supporting [KWV’s] position that Mr. Maron used telecommunication to control the day-to-day operations of the business” during the times he was in Florida rather than Rhode Island. Hr’g Tr. 17:19-22. However, OSDBU did not express any interest in examining the details of Mr. Maron’s communications. In short, OSDBU never purports in its decision to have investigated or determined the actual level of control exercised by Mr. Maron.

Aside from OSDBU’s misplaced reliance on Mr. Maron’s residency as the determinative factor for control, there is nothing in the administrative record to suggest that Mr. Maron was not exercising sufficient control over KWV. In the circumstances, the court concludes that the government has not “‘provided a coherent and reasonable explanation of its exercise of discretion,’” Impresa Construzioni Geom. Domenico Garufi, 238 F.3d at 1333 (quoting Latecoere Int’l, Inc. v. United States Dep’t of the Navy, 19 F.3d 1342, 1356 (11th Cir. 1994)), nor articulated a “‘rational connection between the facts found and the choice made,’” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)). Accordingly, the court finds that OSDBU’s determination disqualifying KWV was arbitrary and capricious, and not in accordance with VA’s regulations.  (KWV, Inc. v. U. S., No. 12-882C, May 9, 2013)  (pdf)


A. Statutory and Regulatory Framework

The statutory predicate for the Veterans First Contracting Program is the Veterans Benefits, Health Care, and Information Technology Act of 2006 (“Veterans Benefits Act”), Pub. L. No. 109-461, tit. V, 120 Stat. 3403, 3425 (codified at 38 U.S.C. § 8127-28). This Act provides in pertinent part that “[i]n procuring goods and services pursuant to a contracting preference under this title or any other provision of law,” VA “shall give priority to a small business concern owned and controlled by veterans,” provided that the business is included in a small business database maintained by VA. 38 U.S.C. § 8128. To implement this Act, VA established the Veterans First Contracting Program in 2007, directing VA to consider SDVOSB and VOSB entities as first and second priority.

For some time, VOSB and SDVOSB entities certified themselves and self-registered in the VIP vendor database. Statutory amendments now set out at 38 U.S.C. § 8127(e) and (f) clarified the responsibilities of the Secretary of the Department of Veterans Affairs in addressing and verifying applications for inclusion in the database. See also VA Acquisition Regulation: Supporting Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses, 74 Fed. Reg. 64,619-01 (Dec. 8, 2009) (codified at 48 C.F.R. Parts 802, 804, 808, 809, 810, 813, 815, 817, 819, and 852) (effective Jan. 7, 2010); 75 Fed. Reg. 6098-01 (Feb. 8, 2010) (codified at 38 C.F.R. Part 74) (effective Feb. 8, 2010). The effect of those clarifications was the institution of mandatory verification by CVE, even for businesses that may have previously self-certified. Although VIP eligibility certification through CVE is governed by 38 C.F.R. Part 74, CVE’s approval may be challenged through an agency-level bid protest with OSDBU, as provided in 48 C.F.R. § 819.307.

(sections deleted)

2. Unconditional Ownership.

OSDBU’s letter notifying Miles of its removal from the VIP database cited Articles X, XI, and XII of the company’s Operating Agreement as containing restrictions on the transfer of Mr. Slizofski’s ownership interest in violation of the "unconditional ownership" requirement of 38 C.F.R. § 74.3(b). AR 19-266. Two of those articles are beside the point. Article X simply states that owners cannot transfer their ownership interests in contravention of the Operating Agreement. AR 71-737. Article XII addresses transfers of ownership in the event of incapacity or death. AR 71-740 to -41. VA’s regulation itself contains provisions specifically allowing transfer upon the death or incapacity of a veteran owner without contravening the unconditional-ownership requirement. See 38 C.F.R. § 74.3(e)(3) and (4). These portions of Miles’ Operating Agreement provide no basis for OSDBU’s decision.

Article XI, then, is the provision with which the court must concern itself. In essence, Article XI is a right-of-first-refusal clause, which affords the company, or the remaining members of the company if the company declines, the first opportunity to purchase a member’s shares, should he or she decide to sell. AR 71-737 to -40 (Article XI). The article states: “A [m]ember shall not transfer a [m]embership [i]nterest unless the [m]ember shall have first offered to sell such [m]embership [i]nterest to the [c]ompany and the other [m]embers in accordance with the following provisions . . . .” AR 71-737(¶ 11.01). Thus, for the provision to be operational, a bona fide offer to purchase or a stated intent by the member to make a gift must first exist.

The government argues that the right of first refusal violates 38 C.F.R. § 74.3(b) because the provision is an executory agreement. See Def.’s Mot. at 27. The government relies upon a dictionary definition of “executory:” “that which is yet to be fully executed or performed; that which remains to be carried into operation or effect; incomplete; depending upon a future performance or event.” Def.’s Mot. at 27 (quoting Black’s Law Dictionary 570 (6th Ed. 1990)). According to the government, a right of first refusal “is an executory agreement because it prevents an owner from acting upon his ownership interest in instances such as a sale [that depends] upon future approval by the other members of the company.” Def.’s Mot. at 27-28. The government cites to two decisions of the Small Business Administration (“SBA”) in support of its interpretation. See Def.’s Mot. at 27 (citing In the Matter of: Veterans Constr. Servs., Inc., SBA No. VET-167, 2009 WL 5646466 (Nov. 9, 2009); In the Matter of: Int’l Logistics Grp., LLC, SBA No. VET-162; 2009 WL 5942359 (Oct. 1, 2009)). The first case, Veterans Construction, determined that a service-disabled veteran did not unconditionally own a company within the meaning of 13 C.F.R. § 125.9, which governs eligibility requirements for the SBA’s Service-Disabled-Veteran-Owned Small Business Concern program, because the operating agreement contained tag-along rights.  The second case, International Logistics, concludes that a right of first refusal violated the unconditional ownership provision of 13 C.F.R. § 125.9. The findings in both instances relied on In the Matter of: The Wexford Group Int’l, Inc., SBA No. SDV-105, 2006 WL 4726737 (June 29, 2006), which reasoned:

In the context of 13 C.F.R. § 125.9, unconditional necessarily means there are no conditions or limitations upon an individual's present or immediate right to exercise full control and ownership of the concern. Nor can there be any impediment to the exercise of the full range of ownership rights. Thus, a service-disabled veteran: (1) Must immediately and fully own the company (or stock) without having to wait for future events; (2) Must be able to convey or transfer interest in his ownership interest or stock whenever and to whomever they choose; and (3) Upon departure, resignation, retirement, or death, still own their stock and do with it as they choose. In sum, service-disabled veterans must immediately have an absolute right to do anything they want with their ownership interest or stock, whenever they want.

2006 WL 4726737, at *6.

In this instance, a different regulation, 38 C.F.R. § 74.3, is at issue. Unlike 13 C.F.R. § 125.9, Section 74.3 contains an extended definition of unconditional ownership. See 38 C.F.R. § 74.3(b) (generally providing that “[o]wnership must not be subject to conditions precedent, conditions subsequent, executory agreements, voting trusts, restrictions on assignments of voting rights, or other arrangements causing or potentially causing ownership benefits to go to another”). From this general starting point, the regulation notes that provisions causing ownership benefits to go to another “after death or incapacity” do not affect the unconditional nature of ownership. Id. In the same vein, “[t]he pledge or encumbrance of stock or other ownership interest as collateral, including seller-financed transactions, does not affect the unconditional nature of ownership if the terms follow normal commercial practices and the owner retains control absent violations of the terms.” Id. (emphasis added). In sum, Section 74.3(b) modifies “unconditional” ownership to mean something other than the categorical bounds of the dictionary definition of the word “unconditional.”

Apparently no reported decisions address the scope of executory agreements in the specific context of Section 74.3(b). Most familiarly, the issue has arisen in the bankruptcy context. There, courts have adopted a pragmatic definition of what qualifies as an executory contract, noting that “the inquiry is whether both parties to the contract have unperformed obligations that would constitute a material breach if not performed. If so, the contract is executory.” In re Allentown Ambassadors, Inc., 361 B.R. 422, 444 (Bankr. E.D. Pa. 2007); see also In re Capital Acquisitions & Mgmt. Corp., 341 B.R. 632 (Bankr. N.D. Ill. 2006); In re The IT Group, Inc., Co., 302 B.R. 483 (Bankr. D. Del. 2003) (determining that normal commercial rights of first refusal were not executory contracts under the Bankruptcy Code). “While almost all agreements to some degree involve unperformed obligation[s] on either side, such an expansive definition of the term ‘executory’ is not what Congress enacted through its choice of language in [the Bankruptcy Code].” Gouveia v. Tazbir, 37 F.3d 295, 298-99 (7th Cir. 1994). This reasoning seems relevant to the court’s interpretation of C.F.R. § 74.3(b). A right of first refusal does not necessarily burden either party with unperformed obligations that would constitute a material breach if not performed.

Furthermore, the language of C.F.R. § 74.3(b) illustrates that by prohibiting executory agreements, the drafters were attempting to prevent “ownership benefits,” such as voting rights or the distribution of profits or losses, from falling into the hands of non-veterans, even as the company appeared to operate under the auspices of the veteran majority owner. Like the encumbrance of veteran-owned stock as collateral, inclusion of a standard right of first refusal in an operating agreement is a “normal commercial practice[],” 38 C.F.R. § 74.3(b), that does not hinder the veteran-owner’s interest unless the veteran receives a bona fide offer and chooses to sell. Moreover, upon a sale, the company would not automatically retain its eligibility for the VIP database, because it may no longer be owned by a veteran who could qualify for the database. See 38 C.F.R. § 74.3(e)(4) (requiring CVE to verify that all eligibility requirements continue to be met by the concern and the new owners). In sum, the right of first refusal provision in Article XI is not presently executory, is a standard provision used in normal commercial dealings, and does not burden the veteran’s ownership interest unless he or she chooses to sell some of his or her stake. As a result, Article XI, Paragraph 11.01 does not affect the veteran’s unconditional ownership with regard to C.F.R. § 74.3(b). The decision by OSDBU to the contrary, i.e., that Articles X, XI, and XII of the operating agreement rendered Miles ineligible for the VIP database, was arbitrary and capricious and contrary to law.

3. OSDBU’s Consideration of Grounds Not Raised by the Contracting Officer or Agency Protester.

Miles additionally argues that OSDBU violated 48 C.F.R. § 819.307 by reviewing the veteran’s unconditional ownership, a ground it contends was not raised by the Protest. Pl.’s Mem. at 20. The regulation governing the protest process states that “the Executive Director. . . [of OSDBU] shall decide all protests on service-disabled veteran-owned or veteran-owned small business status whether raised by the contracting officer or an offeror. Ownership and control shall be determined in accordance with 38 C[.]F[.]R[.] part 74.” 48 C.F.R. § 819.307(c). The regulation further states that “[a]ll protests must be in writing and must state all specific grounds for the protest. Assertions that a protested concern is not a service-disabled veteran-owned or veteran-owned small business concern, without setting forth specific facts or allegations, are insufficient.” 48 C.F.R. § 819.307(c)(1).

Miles argues that this language confines OSDBU to issues specifically raised by a protesting offeror or the contracting officer. Pl.’s Mem. at 20-21. Miles relies upon 38 C.F.R.  §§ 74.21 and 74.22 to support its interpretation of Section 819.307, because these regulations empower CVE, not OSDBU, to initiate an investigation if VA believes a participant’s verified status should be canceled prior to the expiration of its eligibility term. See Pl.’s Mem. at 23-26. Section 74.21 provides that CVE “may cancel the ‘verified’ status button for good cause . . . including [f]ailure by the participant to maintain its eligibility for program participation [or] [f]ailure by the participant for any reason . . . to maintain ownership, management, and control by veterans, service-disabled veterans[,] or surviving spouses.” 38 C.F.R. § 74.21(c). Section 74.22 requires that the veteran participant be given notice of CVE’s proposed grounds for removal and a thirty-day period within which it can respond. When read in concert, Miles argues, these regulations give CVE the responsibility for investigating whether a verified company has maintained its status, while OSDBU should only address verification allegations specifically raised in protests. See Pl.’s Reply at 14, ECF No. 34.

In its protest letter, Veteran focused on the allegation that Miles Construction was a “pass thru” for another construction company, AR 14-249, whose owner is a minority owner of Miles, see AR 105-1033. Veteran asserted that the two companies were affiliated by their common ownership, meaning that Miles did not meet the standard requiring “at least 51 percent of each class member interest [to] be unconditionally owned by one or more veterans or service[-]disabled veterans.” AR 14-250 (quoting 38 C.F.R. § 74.3). Veteran neither mentioned nor addressed restrictions on Mr. Slizofski’s ownership interest beyond these contentions that Mr. Slizofski’s ownership interest is a façade and that another company actually controls Miles.

Here, OSDBU interpreted 48 C.F.R. § 819.307(c) in a manner that allowed it to expand the protest to encompass Miles’ general compliance with the verification requirements. The government argues that OSDBU’s interpretation is reasonable because it provides a streamlined, separate path for OSDBU to make a “time sensitive,” “final” decision about whether a company is eligible for a procurement set aside for entities in the VIP database in response to a bid protest. H’rg Tr. 37:1-38:6. This argument has some basis. Certainly agencies have a responsibility to reach decisions on protests promptly. Moreover, the court gives deference to OSDBU’s position that it can reach beyond a protester’s allegations or a contracting officer’s refusal to raise additional issues. That circumstance, however, does not excuse a failure to provide basic due process to affected offerors. An agency should not act without affording an entity whose award or projected award is protested with notice of an alleged defect and an opportunity to respond. An interpretation of 48 C.F.R. § 819.307(c) that does not allow this basic procedural due process is plainly erroneous and cannot be upheld.

4. OSDBU’s Cancellation of Miles’ Status as a SDVOSB.

Miles argues that the termination of its status as an SDVOSB was arbitrary and capricious because OSDBU did not follow the cancellation procedures set forth in 38 C.F.R. § 74.22, which include a right of response, a waiting period, and a right of appeal. Pl.’s Mem. at 24-25, 27. In response, the government contends that the agency-protest process set forth in 48 C.F.R. § 819.307 does not incorporate those procedural requirements and that OSDBU’s action was sufficient under the agency-protest system. Def.’s Mot. at 30, 32-33.

48 C.F.R. § 819.307 assigns responsibility to the Executive Director of OSDBU to “decide all protests on service-disabled veteran-owned or veteran-owned small business status whether raised by the contracting officer or an offeror.” 48 C.F.R. § 819.307(c). The regulation specifies that ownership and control issues “shall be determined in accordance with 38 C[.]F[.]R[.] part 74.” Id. The regulation then sets forth several procedural requirements related to the protest and investigatory process, namely that all protests must be in writing and must state “all specific grounds for the protest,” and that protests must be submitted to the contracting officer, who must receive them by close of business on the fifth business day after bid opening or after notification by the contracting officer of the apparently successful offeror. Id.

As a matter of administrative law, OSDBU’s determination falls within the category of informal agency adjudication. Section 555 of the APA establishes rudimentary “procedural requirements for informal adjudication.” Systems Plus, Inc. v. United States, 69 Fed. Cl. 757, 767 (2006) (citing Advanced Sys. Tech., Inc. v. United States, 69 Fed. Cl. 474, 484 (2006) (in turn citing Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 655 (1990) and quoting Ronald J. Krotoszynski, Taming the Tail That Wags the Dog: Ex Post and Ex Ante Constraints on Informal Adjudication, 56 Admin. L. Rev. 1057, 1059 (2004))). Section 555(b) of the APA provides that a party is entitled to be heard in an agency proceeding, absent exigent circumstances:

A party is entitled to appear in person or by or with counsel or other duly qualified representative in an agency proceeding. So far as the orderly conduct of public business permits, an interested person may appear before an agency or its responsible employees for the presentation, adjustment, or determination of an issue, request, or controversy in a proceeding, whether interlocutory, summary, or otherwise, or in connection with an agency function.

5 U.S.C. § 555(b); see also Advanced Sys. Tech., Inc., 69 Fed. Cl. at 484 (“Further, [S]ection 555(b) is ‘universally understood to establish the right of an interested person to participate in an on-going agency proceeding.’” (quoting Block v. Securities and Exch. Comm’n, 50 F.3d 1078, 1085 (D.C. Cir. 1995))). The Supreme Court in Pension Benefit indicated that a party's entitlement to the protections afforded by Section 555 corresponds to procedural due process. See 496 U.S. at 655-56. In that respect, “[t]he fundamental requirement of due process is the opportunity to be heard ‘at a meaningful time and in a meaningful manner.’” Mathews v. Eldridge, 424 U.S. 319, 333 (1976) (quoting Armstrong v. Manzo, 380 U.S. 545, 552 (1965)). Although 48 C.F.R. § 819.307 did not explicitly call for it, OSDBU notified Miles of the protest and provided it an opportunity to respond to the specific allegations in the protest letter. See AR 104-1027 to -28 (E-mail exchange between Endicott and Slizofski). OSDBU did not, however, notify Miles about its self-initiated “unconditional ownership” examination. Accordingly, Miles had no opportunity to address OSDBU’s position that Mr. Slizofski’s ownership was restricted in a disqualifying way. No exigent circumstances curtailed Miles’ opportunity to be heard in this regard. In short, OSDBU’s examination contravened “the minimal requirements” for informal adjudication set forth in Section 555 of the APA. Pension Benefit, 496 U.S. at 655; see also Henry J. Friendly, Some Kind of Hearing, 123 U. Pa. L. Rev. 1267, 1297-98 (1975) (postulating that more severe governmental actions require greater procedural safeguards). Therefore, OSDBU’s decision is invalid under Section 706(2)(A) of the APA. See Impresa Construzioni, 238 F.3d at 1332.  (Miles Construction, LLC v U. S., No. 12-597C, February 14, 2013) (pdf)


C. VA’s interpretation of the 2006 Act is reasonable.

Plaintiff argues that, to the extent the language in the [Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. §§ 8127-28] 2006 Act is ambiguous, VA has written an implementing regulation that clarifies this ambiguity by requiring VA to consider SDVOSB and VOSB set-asides for all acquisitions. In particular, plaintiff points to [Veterans Affairs Acquisition Regulation] VAAR § 819.7005, which states:

(a) The contracting officer shall consider SDVOSB set-asides before considering VOSB set-asides. Except as authorized by 813.106 [involving contracts exceeding the micro-purchase threshold up to $5 million], 819.7007 [involving awards to SDVOSBs of under $5 million on a sole source basis] and 819.7008 [involving awards to VOSBs of under $5 million on a sole source basis], the contracting officer shall set-aside an acquisition for competition restricted to SDVOSB concerns upon a reasonable expectation that,

(1) Offers will be received from two or more eligible SDVOSB concerns; and

(2) Award will be made at a fair and reasonable price.

Id. (emphasis added). Plaintiff argues that the language “the contracting officer shall set-aside an acquisition for competition restricted to SDVOSB concerns” clearly creates a mandatory set-aside without any exceptions, and that this interpretation by VA, found in its regulations, is entitled to deference. Any other interpretation by VA, plaintiff argues, was developed only for the purposes of litigation and is not entitled to deference.

The government argues that plaintiff has mischaracterized the VAAR and that VA has reasonably decided to exclude FSS orders from application of the 2006 Act. The government asserts that VA’s interpretation of the 2006 Act, as expressed in the preamble to the VAAR, is consistent with the statutory language and legislative history of the 2006 Act, which indicate that VA need not set aside each and every contract for SDVOSBs and VOSBs before ordering against the [Federal Supply Schedule] FSS. In regard to FSS procurements in particular, VA in the preamble of the final VAAR states:

Comment: VA received a comment stating that the proposed rule was unclear whether it was intended to be applicable to task and delivery orders under the Federal Supply Schedule (FSS). The commenter indicated that although GSA has delegated to VA the authority to administer certain schedules, the delegation does not extend to policy implementation. The commenter recommended a revision stating that SDVOSB and VOSB set-asides and sole source provisions do not apply at the FSS order level.

Response: We disagree with the commenter and reject the suggestion because this rule does not apply to FSS task or delivery orders. VA does not believe a change to the regulation is needed, and 48 CFR part 8 procedures in the FAR will continue to apply to VA FSS task/delivery orders. Further, VA will continue to follow GSA guidance regarding applicability of 48 CFR part 19 of the FAR, Small Business Programs, which states that set-asides do not apply to FAR part 8 FSS acquisitions.

VA Acquisition Regulation: Supporting Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses, 74 Fed. Reg. 64,619, 64,624 (Dec. 8, 2009) (emphasis added). The government asserts that VA’s position that the 2006 Act’s regulations “do[] not apply to FSS task or delivery orders” is reasonable, and entitled to deference. The court agrees.

As the government argues, the VAAR are silent as to the role of the FSS in relation to the set-aside program established by the 2006 Act. Where the text of a regulation is unclear or silent, the court may look to the preamble of the regulation to determine the administrative construction of a regulation. See Fidelity Fed. Sav. and Loan Ass’n v. Cuesta, 458 U.S. 141, 158 n.13 (1982); Wyo. Outdoor Council v. U.S. Forest Serv., 165 F.3d 43, 53 (D.C. Cir. 1999) (“Although the preamble does not ‘control’ the meaning of the regulation, it may serve as a source of evidence concerning contemporaneous agency intent.”). As noted above, the preamble accompanying the final VAAR states that the VAAR “do[] not apply to FSS task or delivery orders,” and that the regulatory framework of FAR Part 8 will continue to apply to VA’s FSS orders. VA Acquisition Regulation, 74 Fed. Reg. at 64,624. The preamble further asserts, “Under this final rule, a VA contracting officer may restrict competition to contracting with SDVOSBs or VOSBs under certain conditions. Likewise, sole source contracts with SDVOSBs or VOSBs are permissible under certain conditions. This final rule implements these special acquisition methods as a change to the VA Acquisition Regulation (VAAR).” Id. at 64,619 (emphasis added). In explaining the reasons for its rules, VA states in the preamble, “Specifically, this final rule will allow VA contracting officers to . . . [r]equire set-asides for SDVOSBs or VOSBs above the simplified acquisition threshold when the contracting officer has a reasonable expectation that two or more eligible SDVOSBs or VOSBs will submit offers and that the award can be made at a fair and reasonable price that offers the best value to the United States.”  d. at 64,628 (emphasis added).

The court recognizes that the preamble to the regulations lacks the formality of the regulations themselves, and is therefore not entitled to Chevron deference.  However, the agency’s interpretation of the statute found in the preamble is still entitled to deference in so far as it has “the power to persuade,” Skidmore, 323 U.S. at 140, based on the agency’s consistency, formality, expertise and if the agency’s determination fits with prior interpretations. See Mead, 533 U.S. at 228, 234-35.

VA’s interpretation of its rules in the preamble indicate that VA interpreted the terms of the Act, and the VAAR, as having no effect on its ability to use the FSS without limitation. The court finds that this interpretation is a reasonable use of the discretion implicitly granted by the statute, and is entitled to deference. VA’s interpretation in the preamble has many of the characteristics favoring deference under Skidmore v. Swift& Co. First, VA’s interpretation that the set-aside provisions of the 2006 Act do not apply to the FSS has remained consistent over time, and reflects a uniform approach on the part of the agency.  Mead, 533 U.S. at 234. Second, VA’s interpretation is not directly in conflict with the Act or the VAAR, which are silent on the role of the FSS in meeting the goals set by the Secretary. VA’s interpretation of its abilities under the Act is also consistent with the legislative history of the Act, which expresses the intent that VA retain “options” to award contracts to SDVOSBs and VOSBs, and that VA would “exercise reasonable judgment” in meeting the Act’s set-aside goals alongside VA’s other small business goal obligations. Third, while VA’s explanation of its interpretation of the Act, found in the preamble, is brief, it made clear the basis of VA’s position—the traditional exemption of the FSS from set-aside programs—and was promulgated in the context of a notice-and-comment rulemaking procedure. Finally, VA’s interpretation is consistent with the traditional relationship between set-asides and the FSS found in the FAR—namely, that agencies are not required to implement set-aside programs before or while using the FSS. See K-Lak, 98 Fed. Cl. at 8. Under these circumstances, the court finds that VA’s interpretation of the statute, a reasoned interpretation made in the context of its notice-and-comment rulemaking procedures, is entitled to deference.

In sum, the court respectfully disagrees with the GAO’s interpretation of the 2006 Act in the case at hand, and finds that VA’s decision not to set aside the ENS contract at issue was not arbitrary, capricious, or contrary to law. The government is therefore entitled to judgment on the stipulated facts as to this particular procurement action.  (Kingdomware Technologies, Inc. v. U. S. No. 12-173C, November 27, 2012)  (pdf)


This pre-award bid protest is before the court after argument on the parties’ crossmotions for judgment on the administrative record. Totolo/King Joint Venture (“plaintiff”), a Service Disabled Veteran Owned Small Business general contractor, seeks permanently to enjoin the Department of Veterans Affairs (the “DVA”) from soliciting a contract for the construction of a new surgical-suite addition and the partial renovation of surgical support area at the Harry S. Truman Veterans Memorial Hospital in Columbia, Missouri (the “Project”), as an open and unrestricted competition. The issue presented is whether the DVA conducted a meaningful winnowing process to determine the availability of eligible, capable veteran-owned small-business contractors.

(Sections deleted)

Defendant’s most recent argument, made in its post-argument brief, is that FAR 19.1001-19.1008 exempts the DVA from following the procedures dictated by FAR 19.502- 2(b), Def.’s Br. filed May 8, 2009, at 3, while conceding that this procurement is subject to the provisions of 38 U.S.C. § 8127, id. at 3 n.3. Defendant proposes that the Demonstration Program was enacted to “test the ability of small businesses to compete successfully in certain industry categories without competition being restricted by the use of the small business set-asides.” Def.’s Br. filed May 8, 2009, at 3; see also FAR 19.1003 (stating that purpose of program is to “[a]ssess the ability of small businesses to compete successfully in certain industry categories without competition being restricted by the use of small business set-asides.”).

(Sections deleted)

On December 17, 2008, the DVA issued a presolicitation (a term of art for presolicitation notice) announcing that the DVA planned to procure construction services through an unrestricted bidding process opening up competition to small and large business offerors. The presolicitation stipulated that solicitation documents would be available around December 31, 2008, and provided an estimated proposal due date of February 5, 2009.

On February 19, 2009, plaintiff filed its complaint in the United States Court of Federal Claims. In pleading two counts for relief, plaintiff alleged that the DVA failed to follow applicable laws and regulations, 38 U.S.C. §§ 8127, 8128 (2006); 48 C.F.R. (FAR) § 19.202-2 (2006): (1) by unreasonably conducting market research, vis-a-vis the SSN, for the identification of potential small bondable and experienced businesses interested in the proposed Solicitation; and (2) by arbitrarily and in violation of applicable statutes and procurement regulations failing to follow the practice of stipulating bond requirements when conducting market research, thereby discouraging small businesses from responding to its SSN.

(Sections deleted)

Mr. Clemons first elaborated on the results of and the steps taken in evaluating the responses to the SSN that was issued in Federal Business Opportunities (Fedbizzopps.gov) on September 20, 2008. He explained that the SSN targeted six small business categories, including SDVOSBs, as the “purpose of the Sources Sought was to solicit responses from small bondable businesses capable of performing the work” that is the subject of the Solicitation. AR at 5. Three small businesses responded to the SSN indicating interest in the Project: 1) plaintiff; 2) an “8(a) small business”; and 3) Alaska Native Corporation/8(a). Id. Mr. Clemons stated that he researched the qualifications of one of the responding 8(a) contractors, but concluded that this company lacked the bonding capability required for the Solicitation. “Thus, because [the Office of Construction and Facilities Management for the DVA] wanted to compete this procurement, [Mr. Clemons] decided to forgo an 8(a) setaside.” AR at 6.

Next, Mr. Clemons searched VetBiz.gov by NAICS code 236220. He stated that the search results identified many service-disabled veteran and veteran-owned small businesses; however, he concluded that these businesses were not qualified because they either lacked bonding capability or experience working on projects of similar size. Mr. Clemons also searched the VetBiz registry for small businesses under NAICS code 236220. His search yielded a list of 1,113 general and non-general contractors. Mr. Clemons investigated the first ten companies and also performed a random search, among the 1,113 listed contractors, for qualified small businesses. He reported that both of these searches were unsuccessful in identifying qualified small businesses, noting that “only one SDVOSB had responded to the Sources Sought ad. Consequently, [he] did not expect that two or more responsible SDVOSB firms would submit offers.” AR at 6. Mr. Clemons offered the aforementioned processes and findings as justification for concluding that the construction and renovation services should be solicited as full and open competition/unrestricted. Id.

(Sections deleted)

The Veterans Benefit Act of 2003 § 308, 15 U.S.C. § 657f (2006), created the procurement program for SDVOSBs with the purpose of providing contracting assistance to SDVOSBs. FAR 19.1401(a), (b). At any rate, FAR subpart 19.14 notably is distinguishable as it is applicable to “all Federal agencies that employ one or more contracting officers” and is not limited to contracts issued by the DVA. Compare FAR 19.1402 with 38 U.S.C. § 8127(a)(A), (B). The provisions of FAR 19.1405 to set aside acquisitions for SDVOSBs do not place a mandatory requirement on the contracting officer to restrict competition: “The contracting officer may set-aside acquisitions . . . for competition restricted to service-disabled veteran-owned small business concerns,” FAR 19.1405(a) (emphasis added), when the contracting officer has a reasonable expectation that the agency will receive offers from two or more SDVOSBs, and award will be made at fair market prices, id. § (b).

In comparing the two statutes, 38 U.S.C. § 8127 and 15 U.S.C. §657f , the former imposes a mandatory obligation to restrict competition, while the latter does not. As both parties agree, and as supported by statutory interpretation, 38 U.S.C. § 8127 is more on point in this procurement. The Project is issued by the DVA and is for the construction and renovation of the Harry S. Truman Veterans Memorial Hospital.

Insofar as the DVA is permitted to cancel the Solicitation, plaintiff has not explained why the DVA “has not . . . met the requirements of the program . . . , [and] has not properly noticed and solicited this procurement pursuant to requirements of the” Demonstration Program. Pl.’s Br. filed May 14, 2009, at 4. Addressing plaintiff’s principal complaint, the court concludes that a contracting officer still can give priority placement consideration to veteran-owned small businesses under FAR subpart 19.10 and still can encourage veteranowned small businesses to participate in a solicitation. FAR subpart 19.10 does not preclude veteran businesses from participating or bidding; instead, it merely opens competition to an unrestricted rather than restricted basis. The general duties and requirements under each respective statute are not mutually exclusive.  Plaintiff contends that the purpose of the SSN is to provide notice to the contracting community that the DVA is considering whether to set aside the Project for small businesses and to alert responsible SDVOSB general contractors of government contracting opportunities. Plaintiff cites to FAR 5.201 in support of its argument, which stipulates that “agencies must make notices of proposed contract actions available,” as the “primary purposes of the notice are to improve small business access to acquisition information and enhance competition by identifying contracting and subcontracting opportunities.” Pl.’s Br. filed Apr. 16, 2009, at 2-3 (citing FAR 5.201(a),(c)).

Although plaintiff has not cited a specific authority obligating the DVA to provide a bonding estimate in a SSN, plaintiff maintains that the DVA’s failure to include a bond estimate in the SSN prevented prospective offerors from making “an informed business decision pursuant to FAR 5.207,” thereby violating applicable procurement regulations. Pl.’s Br. filed Apr. 16, 2009, at 3 (citing FAR 5.207(c)) (stating that general description should be “a clear and concise description of the supplies or services that is not unnecessarily restrictive of competition and will allow a prospective offerors to make an informed business judgment”)). Plaintiff proffers as evidence of the DVA’s “arbitrary solicitation methods” eleven other SSNs in which the DVA included the bond estimate. Id. at 3, Ex. B-1 - B-11.

(Sections deleted)

Plaintiff’s president asserts that the bond amount for a project is a “crucial factor” for a small business in making an informed business decision on whether to respond to the SSN. Aff. of William Totolo, Apr. 16, 2009, ¶ 7. Because the typical amount for a bond is 100% of the contract, plaintiff concludes that the “only reasonable assumption” was that a $50 million bond would be required for the Project. Pl.’s Br. filed Apr. 16, 2009, at 4. Plaintiff surmises that these actions evidence the DVA’s failure to provide proper notice and illustrate the DVA’s arbitrary implementation of this SSN, compared to the eleven other notices issued by the agency. In making the latter comparison, plaintiff charges that the DVA neglected its statutory obligation to conduct business with “integrity, fairness, and openness” and to treat bidders fairly. Pl.’s Br. filed Apr. 16, 2009, at 4 (citing FAR 1.102(b)(3) and FAR 1.102- 2(c)(3)). “Arbitrarily changing the solicitation method of notifying small business[es] of the need to respond to potential set asides via different Source Sought Notices is unfair.” Id.; see also Pl.’s Br. filed May 1, 2009, at 8.

(Sections deleted)

Put in the context of the Federal Circuit’s precedent, plaintiff submits that pursuant to FAR 19.202-2, the contracting officer is obligated

to the extent practicable, encourage maximum participation by small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business concerns in acquisitions by taking the following actions:

(a) Before issuing solicitations, make every reasonable effort to find additional small business concerns, unless lists are already excessively long and only some of the concerns on the list will be solicited. This effort should include contacting the SBA procurement center representative (or, if a procurement center representative is not assigned, see 19.402(a)).

In furtherance of the goal in finding small business concerns, FAR 873.106(a)1 provides, in pertinent part, that, “[i]n conducting market research, exchange of information by all interested parties involved in an acquisition, from the earliest identification of a requirement through release of the solicitation, is encouraged.” FAR 873.106(b) provides techniques to be used in promoting “early exchange of information,” such as industry or small business conferences; public hearings; market research; presolicitation notices; and use of vendor databases, including www.vetbiz.gov.

Defendant argues that the standard of reasonableness would not require the DVA to disclose the bonding estimate for several reasons. “Admittedly, contracting officers of the DVA in market surveys have not acted precisely the same way regarding the inclusion of statements in Sources Sought Notices regarding bonding capacity for projects.” Def.’s Br. filed Apr. 24, 2009, at 10. Defendant states that, as evidenced by statute, Congress has provided preferences for small businesses and specifically for veteran-owned small businesses: 38 U.S.C. § 8127 (discussing contracting goals and preferences for small business concerns owned and controlled by veterans); FAR 19.202-2 (locating small business sources); and FAR 873.106 (presolicitation exchanges with industry).

Defendant characterizes plaintiff’s proffer of the eleven other SSNs as evidence of the DVA’s arbitrary presolicitation methods as a matter beyond the “scope of review and completely irrelevant.” Def.’s Br. filed Apr. 24, 2009, at 9. This argument is completely unconvincing because the Court of Federal Claims has been authorized to review agency action that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” See 5 U.S.C. § 706(2)(A).

The court agrees with defendant, however, that disclosure of a bond estimate in the SSN would conflict with the Government’s right and legal obligation to keep a project estimate confidential. FAR 36.203(c) limits information regarding the Government’s estimate of construction costs to “personnel whose official duties require knowledge of the estimate,” unless an exception allowing disclosure is permitted by agency regulations.

Moreover, as defendant points out, plaintiff’s failure to establish the predicate fact – that a prescribed practice or a solicitation method exists – undercuts its challenge to the reasonableness of excluding a bond estimate in the SSN. Plaintiff cannot show that the DVA arbitrarily deviated from a practice without first substantiating that a certain practice has been adopted. FAR 5.207(a), (c) do not support plaintiff’s effort in establishing a prescribed practice, as these provisions list numerous items that must (FAR 5.207(a)) or should be included in proposed contact actions to assist “a prospective offeror [in] mak[ing] an informed business judgment as to whether a copy of the solicitation should be requested . . . ,” FAR 5.207(c). None of the elements enumerated in FAR 5.207 includes disclosure of a bond estimate. While defendant concedes that Mr. Clemons’s actions were inconsistent with the actions of other contracting officers, an inconsistency alone does not establish lack of a rational basis. The contracting officer is afforded discretion in making the “decision not to state the bonding capacity required,” thereby maintaining “the Government’s estimate” for the Project confidential. Def.’s Br. filed Apr. 24, 2009, at 11; see also FAR 36.203. The court accepts defendant’s reconciliation of these putatively inconsistent obligations.

(Sections deleted)

As plaintiff observes, FAR 19.501(e) does require the contracting officer to “document why a small business set-aside is inappropriate when an acquisition is not set aside for small business . . . .” See Pl.’s Br. filed May 14, 2009, at 3. However, neither this regulation nor any other cited by plaintiff imposes the burden that plaintiff would place on the DVA to document and search for SDVOSBs interested in contracting opportunities through the DVA. Defendant’s latest submission revising the Solicitation to reflect the authority for the procurement under FAR subpart 19.10 wrests this procurement out of the ambit of restricted competition. Yet, as both parties concur, 38 U.S.C. § 8127 remains applicable; therefore, plaintiff’s primary argument that the DVA did not perform proper due diligence in alerting and searching for SDVOSBs is not rendered moot. Plaintiff’s assertions that the contracting officer could have better performed his duties under FAR 19.202-2 still do not rise to the level of a prejudicial violation of an applicable procurement regulation. Moreover, plaintiff has failed to prove that the DVA made an unreasonable decision in issuing the Solicitation as an unrestricted competition. The manner in which the DVA assesses its needs is a business judgment and lies within its own discretionary domain. See JT Constr. Co., No. B-254257, WL 505803 at *2 (Comp. Gen. Dec. 6, 1993) (stating that it is business judgment within contracting officer’s discretion when deciding not to set aside competition for small businesses); see also Domenico Garufi, 238 F.3d at 1334-35 (noting that “wide discretion” is afforded to contracting officers “in making responsibility determinations and in determining the amount of information that is required to make a responsibility determination”).  (Totolo/King, a Joint Venture v. U. S., No. 09-104C, June 15, 2009)  (pdf)

------------------------------

1 It appears that the Judge is referring to the VA Acquisition Regulation.


Overall, the amplified record generated by the remand shows that GSA had a reasoned basis in experience with other GWACS for its method of structuring CPP2 in this solicitation. GSA’s rationale for focusing on broad experience for CPP2 in the VETS GWAC reflects its general preference as a matter of policy that GWACs should address broad requirements, in contrast to IT 70 Multiple Award Schedules which can be more specific and targeted to particular services. Recognizing that this general policy preference runs counter to OMB’s strategy for avoiding contract bundling, which can operate to the detriment of small businesses, including SDVOSBs, GSA endeavored to ameliorate these potential harms by encouraging the use by SDVOSBs of business teams and joint ventures, even ventures with large businesses. Remand Determination at 13, 22. The decision by GSA in the face of these competing policy considerations belongs to the agency, not the court. “Th[e] court is acutely aware that it may not [substitute] its judgment for that of the agency.” OTI America, Inc. v. United States, 68 Fed. Cl. 646, 657 (2005) (citing Vermont Yankee, 435 U.S. at 557-58; Keeton Corrs., 59 Fed. Cl. at 755)).  GSA’s actions were flawed in one particular respect because the agency structured the VETS GWAC solicitation without consulting meaningfully with the agencies that would be expected to be the prime users of the GWAC, contrary to GSA’s representations to OMB in GSA’s Business Plan. In context, that failing, however, was not “significant error” on GSA’s part, that by itself would render GSA’s actions in the VETS GWAC arbitrary or capricious. See J.C.N. Constr. Co. v. United States, 60 Fed. Cl. 400, 412 (2004), aff’d, 122 Fed. Appx. 514 (Fed. Cir. 2005). Ultimately, the court can not conclude that GSA’s errors were sufficiently material to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” because it structured the CPP2 criteria rationally based upon its prior experience. 5 U.S.C. § 706(2)(A); see RISC Mgmt. Joint Venture v. United States, 69 Fed. Cl. 624, 638 (2006). (Knowledge Connections, Inc., v. U. S. and Catapult Technology, Ltd.,  No. 06-786C, Reissued December 19, 2007) (pdf)  (See Knowledge Connections, Inc., v. U. S. and Catapult Techology, Ltd., No. 06-786C, April 3, 2007 below)

1.  KCI’s first claim in support of its motion for judgment on the administrative record is that GSA artificially limited awards to 43 offerors. Pl.’s Mot. at 7.25 KCI emphasizes that GSA made no representation in the Business Case presented to OMB that the number of VETS GWAC awards would be limited but that GSA ultimately restricted the awardees to 43. Id. at 16-18. The government responds that the number of awards or awardees was not in fact artificially limited. Def.’s Cross-Mot. at 37-38. KCI’s argument in this respect is unavailing. KCI complains that GSA’s Business Case “made no mention of any specific limitation on the number of awards” and that, as a result, GSA obtained the “executive agent” designation “under false pretenses.” Pl.’s Mot. at 15-17. After reviewing the Business Case, however, OMB placed only two restrictions on its grant of the “executive agent” designation: (1) that “the most highly qualified service-disabled veteran owned small businesses” be chosen and (2) that offerors “not be excluded . . . based on their lack of experience as a government contractor.” AR 93 (Letter from Bolten to Perry, Encl. B (July 5, 2005)). Making a finite number of awards did not violate either OMB condition. Neither was GSA’s decision to award 74 VETS GWAC contracts inconsistent with the solicitation, which explicitly stated that GSA anticipated awarding 20 contracts in both Functional Area 1 and Functional Area 2. AR 182-83, 263 (Solicitation §§ C.11.1-C.11.2, L.9). In exceeding by 34 the number of total contracts projected in the solicitation (i.e., 74 contracts, rather than 40), GSA acted consistently with its representation that there was “no predetermined number of awards.” See Awardee List; AR 137 (Frequently Asked Questions, Question 5). As provided in the solicitation, GSA made a series of paired comparisons to evaluate offers’ technical merit and price, cutting off the number awardees at a “natural break” where “the remaining proposals offer[ed] significantly decreased technical capabilities” not warranting a continuation of the trade-off process. AR 1014 (Solicitation § M.6.), 2114 (Trade-off Analysis Documentation, Functional Area 1), 2716 (Trade-off Analysis Documentation, Functional Area 2). The record thus does not support KCI’s claim that GSA artificially limited the number of awards. Instead, the key questions in this case turn on the criteria GSA used in deciding to make the awards.

2.  KCI also alleges that GSA contravened the conditions on the authority OMB granted the agency under its “executive agent” designation by excluding KCI based on its lack of government contract experience. Pl.’s Mot. at 7; see AR 93 (Letter from Bolten to Perry, Encl. B (July 5, 2005)). The government denies KCI’s allegation, citing the absence of such a restriction in the solicitation and evidence in the administrative record of offerors receiving credit for nongovernment contract experience. Def.’s Cross-Mot. at 32-36. KCI’s argument in this regard is also unavailing. Both parties agree that KCI’s scores on CPP2 – in Functional Areas 1 and 2 – were the primary factor leading to its non-selection. Pl.’s Mot. at 16; Def.’s Cross-Mot. at 36. Based on this fact, KCI concludes that CPP2, under which GSA evaluated the offeror’s depth of experience in each of the identified work-scope elements of a given Functional Area, AR 1009 (Solicitation § L.2.e.), was “purely a measure of ‘experience as a government contractor.’” Pl.’s Mot. at 16. This claim finds no support in the administrative record. First, KCI’s proposal included its non-governmental (i.e., commercial) experience as a contractor, and GSA credited that experience. See, e.g., AR 1090 (KCI Proposal) (noting experience of KCI’s subcontractor in a contract for [***], 1095 (noting experience of KCI’s subcontractor in a contract for [***], 1103-04 (noting experience of KCI’s subcontractor on two contracts for [***], 1169 (noting experience of KCI’s subcontractor on a contract for [***], 1182 (same), 1211 (noting experience of KCI’s subcontractor on two contracts for [***], 17177-78 (GSA’s providing credit for aforementioned commercial contracting experiences), 17187-88 (same). Second, GSA similarly credited other offerors’ commercial contracting experiences. See, e.g., AR 3466 (noting experience of offeror [***] on a contract for [***], 3573 (GSA’s providing credit for [***] work for [***], 3602 (noting experience of subcontractor of [***] on a contract for [***], 3715 (GSA’s providing credit for this work). KCI’s non-selection was not based on its lack of government contract experience, but rather on its overall lack of breadth of experience as measured under CPP2. KCI was not precluded from citing its experience as a commercial contractor, and KCI and other offerors in fact received credit for such experience. Thus, GSA did not eliminate KCI based on a lack of government contract experience in contravention of OMB’s grant of the “executive agent” designation. AR 93 (Letter from Bolten to Perry, Encl. B (July 5, 2005)).

3.  KCI also argues that the monetary tiering arrangement of CPP2 violated the conditions on OMB’s grant of the “executive agent” designation. Pl.’s Resp. to Def.’s Supplemental Br. at 1-2. KCI alleges that KCI and other offerors were excluded because of a lack of “experience in Tiers 1 and 2,” the two lower-monetary-value tiers. Id. at 2. CPP2’s monetary tiers as applied to each of the numerous work-scope elements raise questions about whether CPP2’s evaluation scheme was consistent with Executive Order 13360 and OMB’s “executive agent” designation.26 Executive Order 13360 declared that agencies “shall more effectively implement” certain statutory provisions that set a government-wide goal of three percent for the participation in federal procurement contracts of service-disabled, veteran-owned small businesses and permitted certain set-aside and restricted-competition procurements for such businesses. 69 Fed. Reg. at 62,549; 15 U.S.C. §§ 644(g)(1), 657f. In seeking to implement the executive order, OMB’s grant to GSA of the “executive agent” designation provided that awardees be “the most highly qualified service-disabled veteran owned small businesses.” AR 93 (Letter from Bolten to Perry, Encl. B (July 5, 2005)). As explained supra at 7-8, the VETS GWAC solicitation required offerors’ proposals to explain under CPP2 the bidder’s depth of experience in each work-scope element for a given Functional Area. AR 1009-11 (Solicitation § L.2.e.), 1246 (Executive Summary of VETS GWAC Source Selection (undated)). CPP2 limited offerors to providing three examples of prior contract experience within each of three monetary tiers: $25,000.00 - $100,000.00 (Tier I), $100,000.01 - $250,000.00 (Tier II), and $250,000.01 - unlimited (Tier III). AR 1009 (Solicitation § L.2.e.). Functional Area 1 had 38 work-scope elements, and Functional Area 2 had 26. AR 182-84 (Solicitation §§ C.11.1-C.11.2).CPP2’s tiering arrangement coupled with the numerous work-scope elements operated as a significant constraint on the solicitation. Offerors that could have been “the most highly qualified” in some of the work-scope elements, but not in most or all of them, fared less well then those with broad experience. See AR 1009-11 (Solicitation § L.2.e.), 1246 (Executive Summary of VETS GWAC Source Selection (undated)). The breadth of experience CPP2 required suggests that GSA preferred offerors that were a mile wide and an inch deep in terms of experience, such that the awardees were simply “qualified” firms across a broad spectrum of information technology areas, rather than a pool of “the most highly qualified” offerors in a narrower class of work-scope elements, as seemingly contemplated by OMB. In short, GSA ostensibly emphasized breadth of experience at the expense of “the most highly qualified” criterion that OMB mandated. In addition, the breadth of experience required by CPP2’s high number of work-scope elements – and the likely resulting reduction in the number of awardees – seems inconsistent with the command of Executive Order 13360 that agencies attempt to meet the government-wide goal of three percent for the participation in federal contracts of servicedisabled, veteran-owned small businesses. 69 Fed. Reg. at 62,549; 15 U.S.C. § 644(g)(1). The limitation to three experiences per tier per work-scope element also posed an impediment to specialized offerors. For example, if an offeror had previously performed ten contracts under a given work-scope element and had received $500,000 for each of these contracts, CPP2 precluded the contractor from receiving credit for seven of those experiences because (1) all ten of the contractor’s experiences would fall under Tier 3 and (2) CPP2 limited to three the experiences for which the contractor would receive credit. See AR 1009-11 (Solicitation § L.2.e.), 1246 (Executive Summary of VETS GWAC Source Selection (undated)). On the other hand, if a contractor had three experiences in each monetary tier under a particular work scope element, the contractor would receive credit for all nine experiences. See id. Certain sections of the solicitation stressed that the VETS GWAC’s objective was to provide government agencies with the ability to obtain a broad range of information technology services. See AR 152 (Solicitation § B.3) (“requirements may range from simple to highly complex”), 178 (Solicitation § C.2) (VETS GWAC intended “to provide civilian agencies and the Department of Defense (DoD) the ability to obtain a broad range of [c]omprehensive IT support services”), 179 (Solicitation § C.4) (“The anticipated services require a diversity of skills suitable to a multitude of information technology environments in support of a variety of IT support areas.”); see also AR 142 (Frequently Asked Questions, Question 29) (rigorous evaluation methodology necessary to ensure well-qualified awardees who could perform “the breadth of the work”).27 The government points to these sections as justification for CPP2’s criteria. Def.’s Supplemental Br. at 1-2. However, the solicitation does not tie the objective of selecting broadly qualified awardees to the overreaching goal of the VETS GWAC and OMB’s executive designation. The lack of such linkage in the administrative record precludes this court from determining whether CPP2’s focus on experience in multiple monetary tiers for each of the numerous work scope elements was consistent with Executive Order 13360 and OMB’s “executive agent” designation. 

In this case, the administrative record contains insufficient evidence for the court to determine whether the large number of work-scope elements and the tiering arrangement GSA used in CPP2 to focus on breadth of experience was inconsistent with Executive Order 13360 or OMB’s “executive agent” designation. As the administrative record shows and as the government concedes, GSA’s evaluation under CPP2 was critical to its selection of awardees because so many offerors had similar scores in CPP1 and CPP3. AR 1248 (Executive Summary of VETS GWAC Source Selection (undated)), 2742-49 (Technical Rankings, Functional Areas 1 and 2); Def.’s Reply at 12; Tr. 78:19-25 (Jan. 26, 2007). This case accordingly is remanded to GSA to determine whether the large number of work-scope elements and the tiering arrangement specified in CPP2 limited the number of awardees in a way that was inconsistent with Executive Order 13360 or OMB’s “executive agent” designation. In making this determination, GSA should address (1) the requirement in Executive Order 13360 that agencies “more effectively implement” Sections 644(g)(1) and 657f of Title 15, which set a government-wide goal of three percent for the participation in federal procurement contracts of service-disabled, veteran-owned small businesses and permitted agencies to establish certain set-aside and restricted-competition procurements for suchbusinesses, 69 Fed. Reg. at 62,549; 15 U.S.C. §§ 644(g)(1), 657f, and (2) the condition that OMB placed on its grant to GSA of the “executive agent” designation for the VETS GWAC: that GSA must select “the most highly qualified service-disabled veteran owned small businesses.” AR 93 (Letter from Bolten to Perry, Encl. B (July 5, 2005)). GSA shall proceed expeditiously, making the determinations noted supra within 120 days of the entry of this Opinion and Order. See RCFC 52.2(a)(2)(B). During the remand period, proceedings in this case shall be stayed. See RCFC 52.2(a)(2)(C). “The results of the proceedings on remand are subject to this court’s review.” Diversified Maint. Sys., 74 Fed. Cl. at 128 (quoting Santiago v. United States, 71 Fed. Cl. 220, 230 n.17 (2006)).  (Knowledge Connections, Inc., v. U. S. and Catapult Techology, Ltd., No. 06-786C, April 3, 2007) (pdf)

U. S. Court of Federal Claims - Listing of Decisions

For the Government For the Protester
Great Southern Engineering, Inc. v. U. S. and  K.S. Ware & Associates, LLC, No. 16-975C, November 4, 2016 New PDS Consultants, Inc. v. U. S. and Winston-Salem Industries for the Blind, No. 16-1063C, May 30, 2017
Geo-Med, LLC v. U. S. and Manus Medical, LLC v. U. S., Nos. 16-182C & 16-183C, April 20, 2016  (pdf) AmBuild Company, LLC v. U. S., No. 14-786C, October 16, 2014)  (pdf)
Precise Systems, Inc. v. U. S. and All Points Logistics, LLC and B3 Solutions, LLC, No. 14-1174C, July 28, 2015  (pdf) KWV, Inc. v. U. S., No. 12-882C, May 9, 2013  (pdf)
Precise Systems, Inc. v. U. S. and All Points Logistics, LLC and B3 Solutions, LLC, No. 14-1174C, April 6, 2015  (pdf) Miles Construction, LLC v U. S., No. 12-597C, February 14, 2013 (pdf)
Kingdomware Technologies, Inc. v. U. S. No. 12-173C, November 27, 2012  (pdf)  Also See Kingdomware Techs., Inc. v. United States, No 13-5042, June 3, 2014 and Kingdomware Technologies, B-406507, May 30, 2012  (pdf))  
Totolo/King, a Joint Venture v. U. S., No. 09-104C, June 15, 2009  (pdf)  
Knowledge Connections, Inc., v. U. S. and Catapult Technology, Ltd.,  No. 06-786C, Reissued December 19, 2007) (pdf).  Also, see Knowledge Connections, Inc., v. U. S. and Catapult Techology, Ltd., No. 06-786C, April 3, 2007, that was remanded back to the awarding agency (pdf)  
   

U. S. Court of Appeals for the Federal Circuit - Key Excerpts

It is a bedrock principle of statutory interpretation that each word in a statute should be given effect. See Qi-Zhuo v. Meissner, 70 F.3d 136, 139 (D.C. Cir. 1995) (“An endlessly reiterated principle of statutory construction is that all words in a statute are to be assigned meaning, and that nothing therein is to be construed as surplusage.”); see also Ariad Pharms., Inc. v. Eli Lilly & Co., 598 F.3d 1336, 1345 (Fed. Cir. 2010) (concluding that a party’s proposed statutory interpretation “violat[ed] the rule of statutory construction that Congress does not use unnecessary words.”).

Kingdomware’s interpretation of subsection (d) assigns dispositive weight to the command term “shall,” but ignores additional statutory language stating that this mandate is “for purposes of meeting the goals under subsection (a).” Under Kingdomware’s interpretation, the statute’s mandate requiring the VA to conduct a Rule of Two analysis would apply to every competitive contract contemplated by the VA without any regard for the VOSB contracting goals set under subsection (a), despite the provision’s explicit reference to these goals. Indeed, Kingdomware conceded at oral argument that under its interpretation of 38 U.S.C. § 8127(d), the VA must continue to apply a Rule of Two analysis for every contract even after it has met the goals set under § 8127(a). Oral Argument at 4:05–5:20. Further, as the VA points out, if § 8127(d) requires the agency to conduct a Rule of Two analysis for every contract irrespective of the goals set under subsection (a), this goal-setting provision is itself made superfluous. Because Kingdomware’s plain meaning interpretation of § 8127(d) reads the words “for purposes of meeting the goals under subsection (a)” out of the statute and makes the mandatory goal-setting statutory provision unnecessary, it cannot stand.

The statutory scheme as a whole links the Rule of Two mandate (denoted by the word “shall”) in subsection (d) to the goals set under subsection (a). The mandate is, therefore, the required procedure for meeting these goals. It is fully consistent with subsection (a), which requires the VA to set goals for contracting with VOSBs, but grants the VA considerable discretion to set the value of these goals. Accordingly, the agency need not perform a VOSB Rule of Two analysis for every contract, as long as the goals set under subsection (a) are met. The correct reading of the statute according to its plain meaning puts the “shall” in subsection (d) in harmonious context with the discretionary “may” provisions of subsections (b) and (c), and assures that the goals of subsection (a) will be set by the Secretary, not the success or failure of the Rule of Two in the marketplace.

Congress enacted § 8127 out of frustration with the failure of agencies Government-wide to achieve the aspirational goals of 3% for SDVOSBs. In hearings leading up to the 2006 Veterans Act, the prime reason for failure to achieve the Government-wide goals was “the discretionary, not mandatory, nature of the goals.” H.R. REP., at 15. As Rep. Boozman observed, § 8127 changed what had been a “may” to a “shall” in terms of goals. Congress chose the VA to set the example among Government agencies by imposing on it the obligation to meet the goals set by the Secretary for both categories of veteran-owned small businesses. Id. Indeed, Congress anticipated that with the contracting tools provided in § 8127, the VA would be able to “meet, if not exceed” its contracting goals, id., while at the same time fulfilling the goals it has set for other small business entities. 152 Cong. Rec. S11609-03, S11616 (“The goals for veteran and service-disabled veteran owned businesses are not in any way intended to prevent attainment of other set-aside goals.”).

As it stands, there is no reason to compel the Secretary to set aside any contract for a Rule of Two inquiry before using the FSS notwithstanding his goals, as Kingdomware requests. The VA has consistently met the mandatory goals for procurement from SDVOSBs and VOSBs in each year since the Veterans Act of 2006 went into force, and Kingdomware does not contend otherwise. The Secretary has complied with his statutory mandate to both set goals and meet them, and, accordingly, the VA contracting officer’s decision not to set aside the contracts at issue was not arbitrary, capricious, or contrary to the law.

CONCLUSION

For the reasons provided above, we affirm the final decision of the Court of Federal Claims in favor of the VA.  (Kingdomware Techs., Inc. v. United States, No 13-5042, June 3, 2014)  (pdf)  Also See Kingdomware Technologies, Inc. v. U. S. No. 12-173C, November 27, 2012  (pdf) and Kingdomware Technologies, B-406507, May 30, 2012  (pdf))

U. S. Court of Appeals for the Federal Circuit - Listing of Decisions

For the Government For the Protester
Kingdomware Techs., Inc. v. United States, No 13-5042, June 3, 2014  (pdf)  

U. S. Supreme Court - Key Excerpts

Petitioner Kingdomware Technologies, Inc., a veteran owned small business, unsuccessfully vied for a federal contract from the Department of Veterans Affairs to provide emergency-notification services. Kingdomware sued, arguing that the Department violated a federal law providing that it “shall award” contracts to veteran-owned small businesses when there is a “reasonable expectation” that two or more such businesses will bid for the contract at “a fair and reasonable price that offers best value to the United States.” 38 U. S. C. §8127(d). This provision is known as the Rule of Two.

In this case, we consider whether the Department must use the Rule of Two every time it awards contracts or whether it must use the Rule of Two only to the extent necessary to meet annual minimum goals for contracting with veteran-owned small businesses. We conclude that the Department must use the Rule of Two when awarding contracts, even when the Department will otherwise meet its annual minimum contracting goals. (Kingdomware Technologies, Inc., v. U. S., 579 U. S. ____ (2016), June 16, 2016)  (pdf)

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  Kingdomware Technologies, Inc., v. U. S., 579 U. S. ____ (2016), June 16, 2016  (pdf)
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