Federal Court Denies Aldevra-Type Protest

On Tuesday, November 27, 2012, the US Court of Federal Claims issued a much-anticipated decision in Kingdomware Technologies, Inc. v. United States. Kingdomware filed a protest at the Court challenging the VA’s use of the Federal Supply Schedule (FSS) to procure Emergency Notification Services instead of first conducting market research to determine whether a set-aside for Service Disabled Veteran Owned Small Businesses (SDVOSBs) or Veteran Owned Small Businesses (VOSBs) was appropriate. Fans of this blog (I know you are out there!) will recall that this issue was addressed in a Government Accountability Office (GAO) protest a while ago by a company called Aldevra. In Aldevra, the GAO held that VA, under the Veterans First Program authorized by Congress, had to consider conducting a set-aside for the benefit of SDVOSBs or VOSBs before using the FSS. The VA famously declined to follow the GAO’s recommendation for corrective action in Aldevra. The Aldevra case spawned a number of similar cases, including a protest filed by Kingdomware Technologies. In each of these Aldevra-type cases, GAO granted the protest. And in each of these protests, the VA refused to take corrective action.

Kingdomware Technologies was the first of these cases to go to the US Court of Federal Claims. Full disclosure: while I was not formally involved in representing Kingdomware in the protest, I did assist the company’s attorney, Tim Power, in preparing the materials and preparing for oral argument. In the protest, Kingdomware adopted the GAO’s reasoning in the many protests on the issue. Specifically, Kingdomware argued the statute authorizing the Veterans First Program, the Veterans Benefits, Health Care and Information Technology Act of 2006, required the VA to consider setting aside any and all agency acquisitions for SDVOSBs or VOSBs before exploring other procurement possibilities. In support of this argument, Kingdomware cited to the “plain language” of the statute which states that VA “shall”award contracts on the basis of restricted competition to SDVOSBs or VOSBs where the Contracting Officer has a reasonable expectation that two or more SDVOSBs or VOSBs will submit offers at a fair and reasonable price (otherwise known as the “Rule of Two”). More importantly, Kingdomware argued that express language controls over any other interpretations or arguments.

The Court, however, disagreed with Kingdomware and adopted the VA’s contrary argument, which I’m chagrined to admit, was quite clever. The VA argued the “shall” language included in the Act had to be read in the context of the entire statutory provision at issue. In this regard, the “shall” language appears in a provision addressing the VA’s authority to set goals for SDVOSB and VOSB participation in agency acquisitions. The “shall” language is also preceded by a clause stating, “for the purposes of meeting the goals.” The VA agreed that it was required to consider a SDVOSB or VOSB set aside, but only after the VA has determined that a set aside was necessary to meet the SDVOSB/VOSB participation goals. That determination, furthermore, was discretionary as the participation percentages were simply “goals” or “targets”. Stated another way, because meeting the “goals” was not mandatory, using a SDVOSB or VOSB set-aside to meet the goals also was not mandatory.

Ultimately the Court agreed and deferred to this interpretation. Before getting there, the Court first reviewed the tenets of statutory interpretation outlined in the seminal Chevron case. Under Chevron, a court must first look to see if the statute clearly addresses the legal issue before the court. If it does, the court must stick to the statutory language. If, on the other hand, the statute does not address the issue, a court may consider various interpretations of the language but generally must defer to the interpretation of the agency charged with implementing the statute. The decision here turned on the Court’s determination that the Act did not address the interaction of the Veterans First Program with an agency’s discretion to use the Federal Supply Schedules. The Court pointed out, correctly I might add, that schedule orders are governed by FAR Part 8 and that FAR Part 8 procedures are explicitly exempt from the small business contracting provisions set forth in FAR Part 19. Since Congress did not address the FAR Part 8 exemption in establishing the Veterans First Program, the Court took the position that Congress must have intended that the schedule orders continue to be exempt from small business contracting requirements, including those set forth in the Act. Accordingly, because the Act did not address the FAR Part 8 exemption, per Chevron, the Court deferred to the VA’s interpretation of the Act.

In my view, the opinion is extremely well written and well-reasoned. And, notwithstanding the human cry of veterans everywhere, it will be hard to appeal. However, I do think it has an Achilles heel. In some of the Aldevra-type GAO protests, GAO discounted the FAR Part 8/FAR Part 19 argument on the basis that FAR Part 19 only refers to the SDVOSB program administered by the SBA pursuant to the Small Business Act and not to the Veterans First Program established by the Act. The Court dismisses this argument in a footnote to the Kingdomware decision – but I think it has some legs. I simply do not think Congress intended the Veterans First program to be like the other SBA small business contracting programs. I think it was meant to be different and it should be considered differently. I’m just saying.

For a government contracts nerd like me, the Aldevra legal odyssey has been fascinating. For others, it is more evidence that VA is not truly on the side of Veterans. But I’m going to be honest here – the VA’s arguments are clever and have some merit. This was not an easy case. Also, I don’t believe VA uses the FSS as an acquisition vehicle to avoid giving benefits to SDVOSBs or VOSBs. The VA uses the FSS for the same reason other agencies do; it is a quicker and cheaper way to acquire standard goods and services. You can call me a traitor to the cause, brainwashed or naïve, but in this era of fiscal austerity, isn’t the agency just doing its job? (Cue: throw rotten fruit).