Court of Federal Claims Disagrees with GAO on Application of VA’s Veterans’ Preference Contracting Program

The Veterans Benefits, Health Care, and Information Technology Act of 2006, codified at 38 U.S.C. §§ 8127-28 requires the Administrator of the Department of Veterans’ Affairs (VA) to establish goals for awarding contracts to veteran owned small businesses (VOSB) and service disabled veteran owned small businesses (SDVOSB). To accomplish this, the Act requires VA contracting officers to conduct market research to determine if there is a reasonable likelihood that two or more responsible VOSBs or SDVOSBs can perform a requirement at a fair and reasonable price. In other words, the familiar rule of two applies to VA procurements in this regard. Further, the Act establishes an order of preference for award of contracts to small businesses as follows:

• Awards to SDVOSBs
• Awards to VOSBs
• Awards to 8(a) concerns or HUBZone small business concerns
• Awards to any other small business.

In addition, to qualify for the preference, SDVOSBs and VOSBs must be registered in a database of qualified small business concerns maintained by the VA.

For several years, there has been a dispute between the VA and Government Accountability Office (GAO) over the application of the Act and its contracting preferences in regard to orders issued under the Federal Supply Schedules (FSS) maintained by the General Services Administration (GSA). The VA has maintained that it does not have to determine if the rule of two applies before it can issue orders against the FSS. However, in several bid protest decisions, the GAO has held that the rule of two does apply to such actions and that the VA must determine that there are not two potential qualified VOSB or SDVOSB offerors before using the FSS to satisfy a requirement. VA has consistently refused to follow the GAO recommendations in these decisions.

In Kingdomware Technologies, Inc. v. U.S., COFC No. 12-173C (November 27, 2012), the Court of Federal Claims (COFC) was asked to address this issue. Kingdomware is a qualified SDVOSB but is not a GSA Schedule holder. It had filed a bid protest with GAO challenging the issuance of an order under the FSS by the VA. In its protest, Kingdomware alleged that the VA did not follow the rule of two as required by the Act. The GAO agreed with Kingdomware and recommended that the VA do so. The VA refused and Kingdomware filed suit in the COFC.

Before the Court, the government argued that the Act was a goal setting statute and did not require the application of the rule of two in every case. The government argued that the VA has discretion as to when to exercise the contracting preferences granted by the Act in order to achieve the goals required to be set by the Act. Therefore, the VA could issue orders against the FSS without first conducting market research to determine if the rule of two applied. The Court agreed with the government and disagreed with the GAO’s decision in the Kingdomware protest.

There are several aspects of the Court’s decision that are significant. First, the COFC decision is not binding on the GAO. Therefore, unless the Kingdomware decision is appealed to the Court of Appeals for the Federal Circuit, the GAO can continue with its view of the Act. In this regard, GAO bid protest decisions are not binding on an agency, but are merely recommendations as to actions the agency should take. If an agency decides not to follow a GAO recommendation, it must inform the GAO of this decision and GAO must include all instances of where an agency has not followed a GAO recommendation in the GAO’s annual report to Congress regarding its bid protest activities. On the other hand, COFC decisions are binding on the parties to the litigation. However, COFC decisions are not binding on other judges on the court. Thus, it is possible that another judge on the court could have a different view of the Act than that expressed in Kingdomware.

Another aspect of the Kingdomware decision is the effect it may have on a contractor’s decision whether to become a qualified vendor in the VA database. There has been much dissatisfaction among contractors and Congress with the process VA uses to qualify vendors. Most of this dissatisfaction is focused on what the critics call an overly strict process for determining eligibility. According to critics, many qualified vendors are being denied status as a qualified vendor because of this process. Therefore, if a contractor is in a line of business that is covered by a Schedule, it may be more advantageous to seek to obtain a Schedule contract rather than attempt to become a qualified vendor listed in the VA database.