The Court of Appeals for the Federal Circuit affirmed the Court of Federal Claims’ rejection of a challenge to the Department of Veterans Affairs’ cancelation of a solicitation after bid opening. The VA contracting officer canceled the solicitation after concluding that the agency had received no responsive offers at a fair and reasonable price. While the plaintiff submitted a price close to the government’s estimate, it had been removed from VA’s VetBiz database after the SBA Office of Hearings and Appeals found the company was not an eligible SDVOSB, and the CO concluded the company was ineligible for the set-aside. While COFC overturned VA’s decision removing the plaintiff from the VetBiz database, it declined to disturb the CO’s decision to cancel the solicitation, because the CO was not aware at that time that the removal was illegal.
In a minority opinion, a dissenting judge reasoned that the agency’s ignorance of the illegality of its decisions did not preclude the court from granting relief.
Veterans Contracting Group Inc. appealed the Court of Federal Claims rejection of its litigation challenging the Department of Veterans Affairs’ cancelation of a procurement for roof replacement services that had been set aside for service-disabled veteran-owned small businesses.
Central to the issue was VCG’s status as an eligible SDVOSB. In other proceedings, the SBA Office of Hearings and Appeals held that VCG was not an eligible SDVOSB because the ownership interests of Ronald Montano, the service-disabled veteran majority owner of the company, were subject to limitations in the event of his death or incapacity. As a result of these limitations, OHA determined that Montano did not “unconditionally” own his interest in VCG, and VA removed the firm from its VetBiz database.
However, before VCG was removed from VetBiz, it had bid on the contract at issue in these proceedings. When bids were opened, the CO found that the lowest-priced responsive bidder had proposed a price 30 percent higher than the government’s estimate. Though VCG had proposed a lower price, which was closer to the government’s estimate, the CO could not consider its bid because the company was not listed in VetBiz on the day bidding closed.
Because the CO concluded there were no reasonable and responsive bids, he recommended canceling and reposting the solicitation. After the cancelation, the Court of Federal Claims granted VCG a preliminary injunction restoring it to VetBiz. However, the court’s decision specifically declined to address relief related to the roof replacement contract, as the agency had stated that the solicitation was being canceled, which mooted VCG’s claims. COFC ultimately made the injunction permanent, reasoning that because SBA and VA regulations had differed at that time on whether contingencies for death or incapacity would disqualify a business from SDVOSB status, the VA had acted arbitrarily and capriciously.
The court, however, rejected VCG’s claim that the CO had acted arbitrarily and capriciously in cancelling the roof replacement solicitation. The court held that the CO used the information available to him at that time to rationally determine the government had not received any reasonable bids. Because he could not have known that VA had improperly removed VCG from VetBiz, the court held that the CO’s decision to cancel the solicitation was not arbitrary or capricious. VCG appealed this decision.
VCG first argued that VA should have held the solicitation open pending resolution of its suit because it was the lowest bidder. In response, the government maintained that the CO rationally canceled the solicitation based on the compelling reason that he had received no reasonable responsive and responsible bids.
The appeals court concluded that VCG had not demonstrated the CO acted arbitrarily. First, the court noted the CO had a reasonable basis for the cancelation, because VCG’s bid was not acceptable and the other responsive bids did not offer fair and reasonable prices. Second, the court held there was no evidence the CO used this reason as a pretext to harm VCG or avoid awarding a contract to an SDVOSB. The court found no evidence the CO knew VA had improperly removed VCG from the VetBiz database when he recommended the solicitation be canceled.
While VCG had informed VA that it planned to seek injunctive relief in relation to a different procurement issued, for which it was also precluded from competing due to its questioned SDVOSB status, this notice did not mention the roof replacement contract. VCG only moved for injunctive relief after bidding had closed and the CO had first recommended canceling the solicitation. In other words, when the CO requested cancelation, he had no reason to expect the court would impose any limitations on his exercise of discretion.
Further, COFC did not grant VCG’s motion until after the solicitation had been fully canceled, and the agency never conceded that it had acted arbitrarily when it removed VCG from VetBiz. The appeals court explained that the CO had to act with the information he had at the time a decision was needed, meaning he had to presume the agency had acted lawfully when it removed VCG from the database. Though COFC later disagreed, this did not retroactively render the CO’s decision irrational.
Next, the court considered whether the CO’s decision to open bids was arbitrary. VCG argued that VA should never open bids once it receives a pre-award protest. However, the court found the plaintiff failed to show that it raised the issue of bid opening before COFC, and therefore it waived this argument on appeal. Regardless, the court found the argument meritless, because VCG did not request injunctive relief until well after bids were opened.
The court therefore affirmed COFC’s holding in full.
In a dissenting opinion, Judge Dyk reasoned that because both the CO and the VA office that maintains the VetBiz database acted agents of VA, they should be considered as one entity. The majority agreed that that the contract likely would have been awarded to VCG but for VA’s error in removing the firm from VetBiz. According to Judge Dyk, because the agency’s action to remove VCG from VetBiz was found to be in error, the CO’s decision to recommend the solicitation be canceled should be set aside.
While the CO did not know that the agency’s actions were unlawful at the time he requested the solicitation be canceled, Judge Dyk argued there is no support for the majority’s holding that the cancelation was therefore rational. In the judge’s opinion, this reasoning would insulate an agency from the repercussions of unlawful actions, provided it did not know the actions were unlawful at the time they were taken. “The VA rejected VCG’s bid only because it wrongfully removed VCG from the database. That the contracting officer had no knowledge of that error or acted in good faith does not excuse the error,” the judge wrote.
Judge Dyk also noted that the court has ordered remedies for unlawful actions even where the agency lacked knowledge of the illegality at the time. In this case, where the agency committed an error that denied a bidder the opportunity to have its bid considered solely on the merits, the appropriate remedy must give the bidder that opportunity, placing it in the position it would have occupied but for the agency’s error.
Veterans Contracting Group Inc. is represented by Joseph Anthony Whitcomb and Andrew R. Newell of Whitcomb, Selinsky, McAuliffe, PC. The government is represented by Steven Michael Mager, Commercial Litigation Branch, Civil Division, Department of Justice, with whom were Joseph H. Hunt, Robert E. Kirschman Jr., Allison Kidd-Miller, and Kara A. Westercamp.
