Protest challenging VA’s decision to transition requirements that had been set aside for veteran-owned small businesses to the AbilityOne program is sustained. In accordance with the Department of Veterans Affairs Contracting Preference Consistency Act of 2020, the VA decided to transition certain eyewear requirements that it been acquiring from the protester, an SDVOSB, to the AbilityOne program. The protester argued that its contract fell under an exception to The Consistency Act, which allowed the requirements to continue to be set aside for veteran-owned business instead of being procured through the AbilityOne program. The government argued that the exception in the Consistency Act only applied to competitive procurements, not to sole-source contracts like the protester’s. The court, however, found that the exception was not limited to competitive procurements; rather, it applied to all contracts that had been awarded to veteran-owned businesses pursuant to a Rule of Two analysis.
Legal Background
In 1971 Congress passed the Javits Wagner-O’Day Act, which requires all government agencies to purchase certain products and services from designated non-profits that employ the blind and people with other severe disabilities. The Act created the AbilityOne Committee charged with creating a procurement list for federal agencies. The AbilityOne list consists of products and services produced by non-profits that employ the blind and people with disabilities. Agencies seeking to procure products or services on the identified on the list must acquire them from an AbilityOne provider.
In 2006, Congress enacted the Veterans Benefits, Health Care, and Information Technology Act (VBA). That Act directed the Department of Veterans Affairs to prioritize awards to veteran-owned small businesses. Under the Act, if the VA determines that at least two veteran-owned small businesses can perform the work at a reasonable price (the Rule of Two), then the VA must set aside the contract for veteran-owned small businesses.
In 2016, in Kingdomware Technologies, Inc. v. United States, 136 S. Ct. 1969, the U.S. Supreme Court held that the VA had to conduct a Rule of Two analysis for every procurement. As a result of this decision, the VA had to prioritize veteran-owned small businesses even when procuring good or services from the AbilityOne list.
In 2017, an SDVOSB filed a protest with the Court of Federal Claims challenging the VA’s decision to purchase eyewear from an AbilityOne provider. The court had to resolve a conflict between the Javits Wagner-O’Day Act and the VBA. The court found that the VBA trumped the Javits Wagner O’Day act—the VA should have applied the Rule of Two analysis to all procurement after the VBA passed in 2006. In PDS Consultants, Inc. v. United States, 907 F,3d 1345 (Fed. Cir. 2018), the Federal Circuit affirmed, holding that VBA requires that the VA give priority to veteran-owned small businesses over those on the AbilityOne list.
In response to the PDS decision, Congress passed the Department of Veterans Affairs Contracting Preference Consistency Act in 2020, which sought to once again prioritize entities for the blind and severely disabled. The Consistency Act required the VA to use the AbilityOne list when procuring any products or services that had been added to the list before passage of the VBA in 2006. But The Consistency Act had an exception to protect requirements that the VA had already transitioned to veteran-owned small businesses. That exception stated that if the VA had awarded a contract to a veteran-owned small business between December 2006 and August 7, 2020, the VA could not move that requirement back to the AbilityOne program until it conducted a new Rule of Two analysis and determined that a veteran-owned small business could not compete for the work.
Nature of Dispute
The VA acquired eyewear and optical services for its Veterans Integrated Service Networks (VISN) through the AbilityOne program. But in 2017, the VA awarded Superior Optical Labs, an SDVOSB, sole source contracts for VISNs 2 and 7 to immediately comply with the PDS Consultants decision. The VA, however, intended the sole source award to be temporary. The agency planned to conduct a competitive, long term contract for the VISNs. The sole-source to Superior Optical would give the agency time to plan the long term procurement.
But the VA encountered several delays in conducting the long term procurement. As result, the agency extended Superior Optical’s sole-source contract several times. In August 2020, however, the VA determined that under the newly enacted Consistency Act, the VISN 2 and 7 requirements had to go back to the AbilityOne program. The VA, therefore, would not conduct a procurement for the eyewear with SDVOSBs.
Superior Optical filed a protest challenging the decision to procure the eyewear through the AbilityOne program. As noted, The Consistency Act requires the VA to use the AbilityOne program to procure items that had been added to the AbilityOne list prior to 2006. But The Consistency Act contained an exception for requirements that had been transferred to SDVOSBs between 2006 and 2020. Those requirements were to stay with SDVOSBs unless the VA conducted a Rule of Two analysis and determined that no SDVOSB could compete for the requirements. Superior Optical argued that because it had been awarded the VISNs 2 and 7 contract before 2020, those requirements could not be sent back to the AbilityOne program.
The government, however, argued that The Consistency Act exception for contracts that had been transferred to SDVOSBs only applied when the contract had been awarded under competitive procedures; it did not apply to contracts, like Superior’s, that had been awarded on a sole-source basis. Specifically, the government argued that The Consistency Act’s exception, which is codified at 38 U.S.C. § 8127(d)(2)(A), provides the exception will not apply to contracts “awarded under paragraph (1)”. Paragraph (1) refers to 38 U.S.C. § 8127(d)(1), which codifies the Rule of Two. The government claimed that the Rule of Two in paragraph (1) only applied to competitive procedures. Because Superior Optical’s sole-source contract had not been awarded through competitive procedures, it did not fall under the exception for contracts that had been transferred to SDVOSBS between 2006 and 2020. Thus, the VA was entitled to procure those requirements through the AbilityOne program.
Court’s Decision
The court agreed with Superior Optical finding that the government had misread the clear language of § 8127(d)(1). Nothing in § 8127(d)(1) limits the exception to competitive awards. Rather, the exception applies to all contracts that were awarded pursuant to a Rule of Two analysis.
The court reasoned that Congress’ intent in adding the exception to The Consistency Act was to prevent the VA from transitioning contracts previously awarded to veteran-owned small businesses between 2006 and 2020 back to the AbilityOne program. The government conceded that VISNs 2 and 7 were awarded between 2006 and 2020 pursuant to a Rule of Two analysis. Thus, the VA had understood the requirement had to be set aside for veteran-owned businesses. The VA only chose to issue a sole-source award to immediately comply with the PDS Consultants case. Because the VISN 2 and 7 requirements had been awarded to a veteran-owned small business between 2006 and 2020, under The Consistency Act, they had still be set aside for veteran-owned small businesses.
Indeed, the court continued, even The Consistency Act’s exception was ambiguous, Superior Optical’s protest would still succeed under the Chevron deference standard. Under Chevron, if the intent of Congress is clear, the court must give effect that intent.
Here, the intent of Congress was clear: The exception to the Consistency Act was a compromise to protect contracts that had already been transitioned to veteran-owned small businesses. The only reason the government could argue that VISNs 2 and 7 did not fall into the exception was because the VA had delayed in conducting a competitive procurement for veteran-owned small businesses. The VA’s own actions (or inactions) could not trump Congress’ clear intent.
The court granted Superior Optical’s motion for judgment on the administrative record and entered a permanent injunction that precluded the VA from moving the requirements for VISNs 2 and 7 to the AbilityOne program.
Superior is represented by Robert J. Sneckenberg, John E. McCarthy Jr., and Rina M. Gashaw of Crowell & Moring, LLP as well as Elizabeth Haws Connally of Connally Law PLLC. The intervenor, Winston-Salem Industries for the Blind, is represented by Jessica C. Abrahams and Dana B. Pashkoff of Drinker Biddle & Reath LLP. The government is represented by Vincent D. Phillips, Jr., Jeffrey Bossert Clark, and Douglas K. Mickle of the Department of Justice as well as Natica Chapman Neely of the Department of Veterans Affairs.
