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Last month I posted a bit on the Government Accountability Office’s decision in Aldevra.   The case raised an interesting issue:  do the Veterans First Contracting Program rules trump  the “required sources of supply” rules?  Specifically, Aldevra argued that before the VA could order off of a FSS contract, it had to do market research to determine whether it was feasible to procure the product/service from a SDVOSB or VOSB under the Veterans First Contracting Program.  The case presented an interesting legal issue because FSS contracts generally are regarded as “required sources of supply” for Government agencies.  Since FSS contracts provide commercial items to the Government on a “most favored customer” basis, agencies are encouraged to use FSS schedules before expending agency resources on procurements. However, over the VA’s objections, the GAO held that the Veterans First Contracting Program takes precedence over buys from at least certain FSS contracts.

GAO’s legal reasoning in reaching this conclusion was fairly sound.  The basis for the decision is simply that the language of statute authorizing the Veterans First contracting preferences for SDVOSBs/VOSBs(the Veterans Benefits, Health Care, and Information and Technology Act of 2006) says that the VA “shall” set aside contracts first for SDVOSBs and then for VOSBs.  The Act does not exempt FSS contracts from its application.  Thus, the plain language of the statute controls.

Notably, however, the FSS contract in question in Aldevra was a non-mandatory FSS schedule.  While FSS contracts generally are considered “required sources of supply,” in fact, not all FSS contracts are required sources for agencies.  The relevant provision is FAR 8.002, entitled “Priorities for use of Government supply sources.”  The regulation lists the priority of sources for the acquisition of supplies and for the acquisition of services.  The list includes agency inventories, excess property, Federal Prison Industries, purchases from organizations employing blind/disabled persons as required sources before mandatory FSS contracts.  Mandatory FSS contracts are given priority over “optional use”  FSS contracts.  Both mandatory and optional use contracts are given priority over “commercial sources.”  Reading this language on its own, VA seems to have a point.  Although the VA did not make this argument in Aldevra, since both mandatory and optional use FSS contracts have priority over commercial sources in FAR Part 8, why should the Veterans First contracting preferences trump the required sources since the preferences are implemented through set-asides which seek commercial sources?

I’ll tell you why.  It’s in the “small print.”  FAR 8.002 starts with the prefatory phrase:  “Except . . . as otherwise provided by law . . .”.  The language means that the priority of sources listed in the regulation does not apply if a law provides for a different priority.  The GAO rightly found that, in the Aldevra case, the 2006 law did provide another order of priority with respect to VA acquisitions:  SDVOSB and then VOSB set-asides before the required sources listed in 8.002.  The Aldevra case, furthermore, is consistent with other rulings stating that the 2006 Act and the Veterans First contracting preferences take priority over other contracting requirements, such as the specialized rules for architect/engineer services mandated by the Brooks Act (see Powerhouse Design Architects & Engineers Ltd., B-403175, October 7, 2010) or requirements tagged for the Ability One program (organizations employing the blind/disabled) (seeAngelica Textile Services, Inc. v. US,  95 Fed. Cl. 208, Oct. 2010).  In the two aforementioned cases, the analysis was the same – shall means shall and trumps any other contracting requirement.  Ironically, the same lawyer represented the VA in both the Powerhouse Design Architects and Aldevra cases.

Neither the GAO nor the VA analyzed the language of FAR 8.002 and neither the GAO nor the VA made an analogy to the other cases addressing the Veterans First priorities.  Instead, the VA made an analogy to another part of FAR Part 8, 8.404, “Use of Federal Supply Schedules.”  The prefatory language of this rule explains that the provisions of certain other parts of the FAR, including FAR Part 19, do not apply to FSS buys.   FAR Part 19 addresses small business contracting programs such as the SDVOSB program administered by SBA.  The GAO correctly rejected this argument, noting that the SDVOSB program discussed in FAR Part 19 is different, and has a different statutory basis, from the Veterans First Contracting Program.  So, the GAO remarked, the exclusion of FAR Part 19 referenced in FAR 8.404 is irrelevant to the issue of whether FSS contracts have priority over the Veterans First Contracting Program requirements.

[By the way, the exclusion of FAR Part 19 from FAR Part 8 is a thing of the past.  Per a new, interim rule published November 2, federal agencies are now authorized to set aside task and delivery orders under MAS contracts; use partial set asides under those contracts; and reserve one or more contracts for small businesses in full and open competitions.  A new blog post is coming on this rule.]

A couple of last words on the Aldevra case.  First, the VA has informed the GAO that it will not follow the decision and will continue to exercise discretion in deciding whether to order off the FSS or compete a requirement under the Veterans First Contracting Program.  The VA didn’t cite any legal basis for this decision; instead it punted the question, acknowledging that it will be up the “courts to decide.”  Second, if my analysis of 8.002 and my reference to the other cases addressing the Veterans First Contracting Program priorities is correct, I have answered one of the questions left open by the Aldevra case:  does the Veterans First Contracting Program trump mandatory FSS contract buys?  Per my analysis, it would, as the required sources and priorities identified in FAR Part 8.002l apply only if there is not other law identifying another priority.  The 2006 Act is that other law.

Finally, the Aldevra case is of particular interest to me because the VA has not been consistent in its view of FSS buys.  I am aware of a company that has a mandatory FSS schedule.  Instead of ordering products off of this schedule, the VA is ordering the products, under either micro-purchase or SAT procedures, from the open market and from large businesses.  To make matters worse, the FSS contract holder is a VOSB!

As a lawyer who has practiced government contracts law for over 20 years,  I struggle between fascination and frustration over the VA’s acquisition decisions and its justifications for them.