Protest challenging the cancellation of a solicitation set aside for SDVOSBs is dismissed. The agency cancelled the solicitation because it only received two bids from SDVOSBs, and both bids were significantly higher than historical prices and the amount budgeted for the procurement. The protester argued that because the agency had satisfied the Rule of Two—i.e., received two bids from SDVOSBs—it was unreasonable for the agency to have evaluated price reasonableness. Indeed, the protester contended that the agency was using a price reasonableness analysis to circumvent the Rule of Two. The court didn’t buy it. The court found that the protester lacked standing because its bid exceeded the amount the agency budgeted for the procurement. Thus, the protester did not have a substantial chance of receiving award. Moreover, the protester failed to state a claim. The Rule of Two is not incompatible with a price reasonableness analysis, and the agency did not err in evaluating bids for reasonableness.
The Department of Veterans Affairs published a solicitation for document shredding services. The procurement was set aside for service-disabled veteran-owned small businesses. Two SDVOSBs, including Land Shark Shredding, submitted quotes. Both quotes were significantly higher than historical pricing for similar services. What’s more, the proposed prices exceeded the available funding for the procurement. The VA determined that two or more SDVOSBs could not provide acceptable quotes for the procurement. Accordingly, the VA cancelled the solicitation so it could open up competition to non-SDVOSBs.
Land Shark Shredding filed a protest challenging the cancelation of the solicitation. Essentially, Land Shark argued that the cancellation was arbitrary and capricious because the VA was refusing to comply with the Rule of Two. After all, two SDVOSBs had submitted quotes. Land Shark contended that the VA was attempting to circumvent the Rule of Two by evaluating price reasonableness. The government moved to dismiss Land Shark’s protest for lack of jurisdiction and failure to state a claim.
The government first argued that the court lacked jurisdiction because Land Shark was not an interested party. Land Shark’s proposed price was four times the amount of funding the VA had allocated to the procurement. The VA argued that it would not have awarded the contract to an offeror whose bid exceeded the available funding. Thus, Land Shark could not demonstrate a substantial chance of receiving the award.
The court agreed with the government, noting that agencies have broad discretion in managing their funds. The VA was within its discretion to conclude that Land Shark’s bid exceeded the available funding. Because Land Shark’s bid exceeded the budgeted amount of funding, it did not have a substantial chance of receiving the contract and thus lacked standing to maintain the protest.
Despite having found that Land Shark lacked standing, the court also went on to find that Land Shark had failed to state a claim. As noted, Land Shark effectively argued that the VA had evaluated the reasonableness of the quotes to circumvent the Rule of Two and not award the contract to an SDVOSB. To the court, it sounded like Land Shark was arguing that 38 U.S.C § 8127, which codifies the Rule of Two, conflicted with the FAR Part 13’s requirement for a price reasonableness analysis. The COFC, however, does not have jurisdiction to hear challenges to the validity of a procurement regulation. Rather, challenges to procurement regulations must be brought in federal district court under the Administrative Procedures Act. To the extent that Land Shark was alleging that the Rule of Two conflicts with FAR Part 13, the protest should failed to state a claim.
In any event, the court did not believe that the Rule of Two conflicted with FAR Part 13. Land Shark was essentially arguing that when applying the rule of two, agencies should not evaluate price reasonableness. But the court noted that statute codifying the Rule of Two as well as the FAR and VA regulations that implement the Rule of Two state that the VA only needs to follow the Rule if award can be made at a fair and reasonable price. In other words, even after a procurement has been set aside for SDVOBs, the agency still needs to determine whether the proposals it has received are acceptable. A proposal is not acceptable if its price is unreasonable. Thus, the court found that a price reasonableness analysis under FAR Part 13 does not conflict with, not is it prohibited by, the Rule of Two. Land Shark’s complaint did not assert a viable legal theory.
Land Shard is represented by Joseph A. Whitcomb of Whitcomb, Selinsky, McAullife, PC. The government is represented by Sonia M. Orfield, Steven J. Gillingham, Robert E. Kirschman, Jr., and Joseph H. Hunt of the U.S. Department of Justice as well as Natica C. Neely of the Department of Veterans Affairs.
