In light of an ongoing disagreement with the Department of Veterans Affairs (VA) and a recent Court of Federal Claims decision supporting the VA, the U.S. Government Accountability Office (GAO) will no longer consider protests concerning the contention that the Veterans Benefits, Health Care, and Information Technology Act (the “2006 Act”) requires the VA to consider setting aside a procurement for service-disabled, veteran-owned small businesses (SDVOSBs), or veteran-owned small businesses (VOSB), before procuring its requirements under the General Services Administration Federal Supply Schedule (FSS).

The dispute between the VA and the GAO arose in connection with the 2006 Act, which provides in relevant part that the VA shall set aside procurements for SDVOSB concerns if the contracting officer has a reasonable expectation of receiving offers from two or more SDVOSB concerns and that award can be made at a fair and reasonable price that provides the best value to the government (commonly referred to as a “Rule of Two” analysis). A regulation issued by the VA implementing the 2006 Act similarly stated that a contracting officer shall set aside a procurement for SDVOSBs (or VOSBs) if there is a “reasonable expectation” that offers will be received from two or more SDVOSB (or VOSB) concerns, and award will be made at a reasonable price.

The VA has interpreted the language in the statute, however, to mean that the agency is not required to conduct a Rule of Two analysis for VOSBs or SDVOSBs if the VA instead chooses to procure its requirements through the FSS since, as the VA has argued, the 2006 Act is a goal-setting statute, not a law mandating SDVOSB or VOSB set asides if the Rule of Two is met.

Under the FSS, contractors agree to provide supplies and services at stated prices for a period of time, giving agencies the ability to buy directly from the FSS instead of holding a publicly advertised procurement. Orders placed against the FSS are deemed to satisfy the conditions of full and open competition and are not subject to set aside requirements for small business under FAR part 19. In support of its position, the VA has also specifically cited FAR part 19.14, which states that agencies “may” set aside procurements for SDVOSBs. The VA also noted that FAR part 8.4, which applies to the FSS, states that the small business set-aside rules under FAR part 19 do not apply.

In Aldevra, B-406205, Mar. 14,2012, 2012 CPD ¶ 112 and Crosstown Courier Service, Inc., B-406262, Mar. 21,2012, 2012 CPD ¶ 119, GAO sustained protests finding that the VA’s use of FSS procedures, without first considering whether two or more SDVOSBs or VOSBs were capable of meeting the agency's requirements at a reasonable price, was contrary to the 2006 Act. Subsequent to these protests, GAO sustained other similar protests including one filed by Kingdomware Technologies, Inc., recommending the VA conduct market research to determine if there is a reasonable expectation that two or more SDVOSB concerns can meet the requirement at a reasonable price and, if so, resolicit the requirement as a set-aside for SDVOSB concerns.

In a rare move, the VA notified the GAO that it would not follow the GAO’s recommendations, stating its positions that the Act only requires the VA to consider SDVOSB set-asides in connection with attaining the agency’s SDVOSB contracting goals and that, where FSS procedures are used and an SDVOSB is not an FSS holder, the SDVOSB is not entitled to any preference under the Act.

Denied of the corrective action recommended by GAO because of the VA’s refusal to implement it, Kingdomware then took its case to the Court of Federal Claims (COFC) seeking injunctive relief compelling the VA to comply with the 2006 Act with respect to three procurements that the VA did not set aside for VOSBs or SDVOSBs. In Kingdomware Techs., Inc. v. United States, No. 12-173C (Fed. Cl., Nov. 27, 2012), the COFC disagreed with the GAO interpretation of the Act finding it was silent as to its application to the FSS and as a “goal setting” statute is ambiguous as to the discretion reserved to the VA. Specifically, the court found the statute’s language that the VA “shall award” is not mandatory, but must be read with the other terms of the Act giving the VA the discretion to set contracting goals for SDVOSBs and VOSBs. When construed in light of the goal-setting provisions, the court found the statute at best ambiguous as to whether the Act mandates a preference for SDVOSBs and VOSBs for all VA procurements. Given the ambiguity, the court ruled the VA retained its discretion to determine whether and how the 2006 Act’s set-aside procedures apply to FSS procurements and reasonably concluded that, based on the traditional exemption of the FSS from small business set-asides, that it would not apply the 2006 Act’s terms to FSS orders.

Last week, the GAO decided that the COFC’s decision in Kingdomware and the VA’s position on the meaning of the statute, with the VA going so far as to openly repudiate GAO’s position and decline to follow the original Aldevra decision and later similar holdings, effectively means that protestors who continue to pursue an argument that the 2006 Act applies to FSS orders will be unable to obtain meaningful relief. The GAO therefore decided that it will no longer consider protests based only on the argument that the VA must consider setting aside procurements for VOSBs or SDVOSBs before conducting a procurement under the FSS.

GAO’s decision recognizes that, without a change in the law by Congress or a successful appeal by Kingdomware at the Court of Appeals for the Federal Circuit, GAO is powerless to enforce its interpretation against the VA as its decisional authority as a legislative body over executive agencies like the VA is limited by the Competition In Contracting Act to “recommendations” only (although agencies with very few exceptions historically have implemented those “recommendations”).

In light of these cases and the GAO’s decision, VA acquisition officials will continue to use FSS in line with VA’s interpretation of the 2006 Act as inapplicable to FSS orders. VOSBs and SDVOSBs can expect that the VA’s non-FSS procurements will still be subject to the 2006 Act’s Rule of Two analysis. For the foreseeable future, however, VOSBs and SDVOSBs may not receive as many set-aside opportunities under VA procurements. VOSBs and SDVOSBs who do not have an FSS contract and who are interested in pursuing theses FSS opportunities should consider whether to negotiate and enter into an FSS contract for their commercial supplies or services.