KWV, Inc. v. United States ( 2013 )

In the United States Court of Federal Claims
No. 12-882C
(Filed Under Seal: January 18, 2013)
(Reissued: January 25, 2013)
**********************************
) Pre-award bid protest; motion for
KWV, INC., ) preliminary injunction; disparate intra-
) agency decisions regarding the level of
Plaintiff, ) control exercised by a veteran owning a
) small business; evidence of “control” within
v. ) the meaning of 38 C.F.R. § 74.4)
UNITED STATES, )
)
Defendant. )
)
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William M. Weisberg, Bryan Cave LLP, Washington, D.C., for plaintiff. With him on
the briefs were Joyce L. Tong Oelrich, and Liana W. Yung, Bryan Cave LLP, Washington, D.C.
Alexis J. Echols, United States Department of Justice, Washington, D.C., for defendant.
With her on the briefs were Stuart F. Delery, Principal Deputy Assistant Attorney General,
Jeanne E. Davidson, Director, and Kenneth M. Dintzer, Assistant Director, Commercial
Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C. Of
counsel were Dennis Foley, Counselor to the Assistant General Counsel, and Aleia Barlow,
General Attorney, Office of the General Counsel, United States Department of Veterans Affairs.
OPINION AND ORDER1
LETTOW, Judge.
Pending before the court is plaintiff’s motion for a preliminary injunction in this pre-
award bid protest. On February 7, 2012, plaintiff, KWV, Inc. (“KWV”), had obtained a
determination from the Department of Veterans Affairs’ (“VA’s”) Center for Veterans Enterprise
(“CVE”) that it was a qualified veteran-owned small business (“VOSB”) concern eligible to
participate in VA’s Veterans First Contracting Program, which accords priority to VOSBs and
service-disabled veteran-owned small businesses (“SDVOSBs”) for contracting opportunities.
1
Because this opinion and order might have contained confidential or proprietary
information within the meaning of Rule 26(c)(1)(G) of the Rules of the Court of Federal Claims
(“RCFC”) and the protective order entered in this case, it was initially filed under seal. The
parties were requested to review this decision and to provide proposed redactions of any
confidential or proprietary information on or before January 24, 2013. No redactions were
requested.
Nonetheless, after KWV had ostensibly won an award of a contract as a VOSB, an agency
protest by a losing bidder resulted in a decision by VA’s Office of Small and Disadvantaged
Business Utilization (“OSDBU”) that KWV “d[id] not meet the status requirements of a
SDVOSB concern” and was therefore ineligible for awards under the Veterans First Contracting
Program. AR 570 (Letter from Thomas Leney to James Maron (Oct. 24, 2012)).2 KWV
challenges that decision and seeks both to be reinstated into the Program and to obtain an
injunction barring VA from awarding contracts upon solicitations on which KWV had submitted
bids. After a hearing held on December 20, 2012, the court granted a temporary restraining
order constraining VA’s action on certain solicitations until KWV’s protest was resolved, and
after a hearing on January 4, 2013, that temporary restraining order was extended. The second
temporary restraining order temporarily set aside VA’s delisting of KWV as a firm qualifying for
participation in the Veterans First Contracting Program.
FACTS3
KWV is a close corporation under Rhode Island General Laws § 7-1.2-1701. Compl.
¶ 17. James Maron, a veteran of the United States Army Corps of Engineers, owns 60 percent of
the issued and outstanding shares of the company, with the remaining shares being split between
his two sons and one granddaughter. Compl. ¶ 18. Mr. Maron has more than 50 years
experience in construction and more than 30 years of experience as a contractor, Compl. ¶¶ 15-
17, and he now focuses solely on KWV, which he formed in 2008 as a VOSB after enactment of
the Veterans Benefits, Health Care, and Information Technology Act of 2006 (“Veterans
Benefits Act”), Pub. L. No. 109-461, tit. V, 120 Stat. 3403, 3425 (codified at 38 U.S.C. §§ 8127-
28), see AR 513. That Act, signed into law on December 22, 2006, directs the Secretary of
Veterans Affairs in procurements using contracting preferences to “give priority to a small
business concern owned and controlled by veterans, if such business concern also meets the
requirements of that contracting preference.” 38 U.S.C. § 8128(a).4 Mr. Maron has had
longstanding success as a contractor in Rhode Island. AR 513. At this point in his career,
Mr. Maron divides his time between Florida and Rhode Island. Although Mr. Maron legally
2
“AR __” refers to the administrative record certified by VA and filed with the court in
accord with RCFC 52.1(a).
3
The recitations that follow constitute findings of fact by the court drawn from the
administrative record of the procurement and the parties’ evidentiary submissions related to
prejudice and equitable relief. See Bannum, Inc. v. United States, 404 F.3d 1346, 1356 (Fed. Cir.
2005) (bid protest proceedings “provide for trial on a paper record, allowing fact-finding by the
trial court”); Santiago v. United States, 75 Fed. Cl. 649, 653 (2007) (“In accord with RCFC 52.1,
the court ‘is required to make factual findings . . . from the [administrative] record as if it were
conducting a trial on the record.’” (quoting Acevedo v. United States, 216 Fed. Appx. 977, 979
(Fed. Cir. 2007))).
4
The priority contracting preferences for SDVOSBs and VOSBs apply only to
procurements by VA. See Angelica Textile Servs., Inc. v. United States, 95 Fed. Cl. 208, 222
(2010) (“The Veterans Benefits Act is a specific mandate to the Department, and only to the
Department, to grant first priority to SDVOSBs and VOSBs in the awarding of contracts.”).
2
resides in Florida, he spends just less than half of any calendar year in Rhode Island. AR 540.
Mr. Maron served in the Korean War from 1952 to 1954, at which time he was honorably
discharged. Compl. ¶ 13. Following his discharge, he worked as a carpenter and estimator at
various construction companies, and in 1977 he and his wife founded Maron Construction
Incorporated. AR 513; Compl. ¶ 14.5 Mr. Maron led that firm’s operations until he retired and
his children took over management. AR 162. On October 31, 2008, however, he incorporated
KWV, a new company, to operate as a VOSB. Compl. ¶¶ 16-17. At that time, the Veterans First
Contracting Program functioned on a self-certification basis, and KWV won and performed two
or three projects as a self-certifying concern. AR 508-09, 540. A verification program was
established by VA in 2010, and on January 14, 2011, KWV applied for inclusion in the VA
VetBiz Vendor Information Pages (“VIP”) Verification Program as a VOSB. Compl. ¶ 19.
KWV’s application was initially denied on September 22, 2011, because KWV’s incorporation
documents indicated that the company was controlled by a board comprised primarily of non-
veteran directors, rather than by Mr. Maron as the majority shareholder. AR 451. KWV then
amended its corporate documents to reflect Mr. Maron’s control and requested reconsideration
by VA on October 12, 2011. AR 455-94. CVE conducted a thorough investigation of plaintiff,
performing a site visit, interviews, and review of documentary submissions from the company.
See AR 495-515.2. Subsequently, on February 7, 2012, CVE approved KWV as a VOSB and
added it to the database of companies eligible for Veterans First Contracting Program projects.
AR 516-17.6
After its verification as a VOSB, KWV proceeded to bid on contractual opportunities
provided by VA for the Boston Health Care System (“BHS”). Compl. ¶¶ 1, 45. As a self-
certifying entity, KWV had previously secured Contract Nos. VA241-C-1312 and VA523-
C07071, both related to the West Roxbury VA Medical Center, see AR 508-09, which qualified
it to bid on posted solicitations under the BHS project in 2012. KWV was subsequently awarded
Task Order No. VA241-12-J-1036 (part of Solicitation No. VA-241-12-R-0563) on July 11,
2012. Compl. Ex. 4 (Award Letter from Athena Jackson to Thomas Maron (July 11, 2012)).
On August 4, 2012, Alares, LLC (“Alares”), a disappointed bidder, filed a formal protest
with VA, alleging that Mr. Maron did not in fact control KWV. AR 518. This protest posited
that Mr. Maron’s two non-veteran sons, David and Thomas Maron, were the true controlling
owners of KWV, evidenced in part by the fact that Mr. Maron resides in Florida for a substantial
part of the year. AR 519.
OSDBU initiated an investigation into KWV’s qualifications as a VOSB. KWV
submitted a response explaining its operating posture, accompanied by Mr. Maron’s tax
statements, a Rhode Island condominium deed and recent utility bills in his name, KWV’s By-
Laws and Operating Agreement, a copy of the original VA verification letter, and photographs of
KWV’s headquarters’ location. AR 538-66. KWV averred that Mr. Maron indeed resided in
5
Apart from his experience as a carpenter and estimator, Mr. Maron attended the Rhode
Island School of Design from 1954 to 1958, focusing on building construction. AR 434.
6
The eligibility certification was valid for one year from the date of verification. AR 516.
3
Florida but that he spent just short of one-half of each year at his home in Rhode Island. AR
540. KWV’s response detailed the methods by which Mr. Maron managed KWV on a day-to-
day basis during the times he was in Florida, using telephone, e-mail, and other electronic means.
Id. OSDBU did not conduct a site visit during this investigation, and did not conduct any
interviews with Mr. Maron or other KWV employees. Compl. ¶ 53. On October 24, 2012,
OSDBU sustained the protest and disqualified KWV from participation in the Veterans First
Contracting Program. AR 568-71. The decision was framed in terms of whether KWV qualified
as a valid SDVOSB, a designation which was neither claimed by KWV nor contested by Alares.
AR 568.7
OSDBU found that Mr. Maron satisfied the majority ownership requirements to be a
SDVOSB, but it concluded that Mr. Maron did not have enough control over the day-to-day
management of KWV because of his Florida residency. AR 569-71. As a result of the
revocation of its VOSB eligibility, KWV’s awarded contract was terminated, and its pending and
future proposals for other VOSB projects (including five under the BHS Multiple Award Task
Order Contract No. VA241-C-1312) were disqualified. See AR 571 (“[KWV] cannot submit
another offer as a VOSB or SDVOSB on a future VOSB or SDVOSB procurement under [38
C.F.R. Part 74], as applicable, unless it demonstrates to VA’s Center for Veterans Enterprise that
it has overcome the reasons for the determination of ineligibility, if it is able, by applying for and
receiving verified status in accordance with 38 C.F.R. Part 74.”); see also Compl. ¶¶ 58-74.
On December 14, 2012, KWV filed a pre-award bid protest action in this court, alleging
that OSDBU’s determination was unreasonable and contrary to law, and seeking reinstatement as
a VOSB. On the same day, KWV applied for a temporary restraining order pending resolution
of its motion for a preliminary injunction. After a hearing, a temporary restraining order was
issued on December 21, 2012, and then extended on January 4, 2013. At a hearing held on
January 4, 2013, the court also heard arguments on KWV’s motion for preliminary injunction.
JURISDICTION
Under the Tucker Act as amended by the Administrative Dispute Resolution Act, Pub. L.
No. 104-320, § 12, 110 Stat. 3870, 3874 (Oct. 19, 1996), this court has jurisdiction over (1) pre-
award bid protests, (2) post-award bid protests, and (3) an alleged violation of a statute or
regulation in connection with a procurement:
[T]he United States Court of Federal Claims . . . shall have jurisdiction to render
judgment on an action by an interested party objecting to a solicitation by a
Federal agency for bids or proposals for a proposed contract or to a proposed
award or the award of a contract or any alleged violation of statute or regulation
in connection with a procurement or a proposed procurement. . . . [T]he United
States Court of Federal Claims . . . shall have jurisdiction to entertain such an
action without regard to whether suit is instituted before or after the contract is
awarded.
7
OSDBU issued a correction on November 19, 2012, recognizing that KWV had sought
to be, and had previously been, certified as a VOSB, not a SDVOSB. AR 567.
4
28 U.S.C. § 1491(b)(1) (emphasis added). See also Rothe Dev., Inc. v. United States
Dep’t of Def., 666 F.3d 336, 338 (5th Cir. 2011) (“[T]he Court of Federal Claims now
retains exclusive jurisdiction over ‘action[s] by an interested party’ ‘objecting to … any
alleged violation of statute or regulation in connection with a procurement or a proposed
procurement.’” (citing 28 U.S.C. § 1491(b)(1))).
KWV alleges that VA contravened its regulations governing VOSB eligibility
through an unreasonable and inconsistent application of 48 C.F.R. § 819.307 (pertaining
to “SDVOSB/VOSB Small Business Status Protests”)8 and 38 C.F.R. Part 74 (setting out
VA’s “Veterans Small Business Regulations”). Section 74.3 of 38 C.F.R. Part 74
specifies the standards for CVE’s evaluation of applicants for VOSB status and the
eligibility for inclusion in the Veterans First Contracting Program, and those standards
are explicitly incorporated by reference in the VAAR provisions governing SDVOSB and
VOSB small business status protests. See 48 C.F.R. § 819.307(c). KWV’s allegations
thus properly invoke this court’s bid protest jurisdiction under the third prong of
Paragraph 1491(b)(1). See RAMCOR Servs. Group, Inc. v. United States, 185 F.3d 1286,
1289 (Fed. Cir. 1999) (Ҥ 1491(b) . . . does not require an objection to the actual contract
procurement . . . . As long as a statute has a connection to a procurement proposal, an
alleged violation suffices to supply jurisdiction.”); Angelica Textile Servs., 95 Fed. Cl. at
215 (“The phrase ‘in connection with’ is very sweeping in scope.” “[A] procurement
‘includes all stages of the process of acquiring property or services, beginning with the
process for determining a need for property or services and ending with the contract
completion and closeout.’” (quoting RAMCOR, 185 F.3d at 1289 (first quote); 41 U.S.C.
§ 403(2) (second quote))); OTI America, Inc. v. United States, 68 Fed. Cl. 108, 117
(2005) (holding that the “broad language” of Subsection 1491(b) demonstrated
“Congress’s expressed intent that the Subsection encompass the entire procurement
process”). Accordingly, this court finds that it has jurisdiction to consider this dispute
under 28 U.S.C. § 1491(b)(1).
DISCUSSION
A. Statutory and Regulatory Framework
The statutory predicate for the Veterans First Contracting Program is the Veterans
Benefits Act, which provides in pertinent part that “[i]n procuring goods and services pursuant to
a contracting preference under this title or any other provision of law,” VA “shall give priority to
a small business concern owned and controlled by veterans,” provided that the business is
included in a small business database maintained by VA. 38 U.S.C. § 8128. To implement this
Act, VA established the Veterans First Contracting Program in 2007, directing its contracting
officers to consider SDVOSB and VOSB entities as first and second priority.
8
48 C.F.R. Parts 801-873 constitute the Veterans Affairs Acquisition Regulation System
(“VAAR”).
5
For some time, VOSB and SDVOSB entities certified themselves and self-registered in
the VIP vendor database. Statutory amendments now set out at 38 U.S.C. § 8127(e) and (f)
clarified the responsibilities of the Secretary of the Department of Veterans Affairs in addressing
and verifying applications for inclusion in the database. See also VA Acquisition Regulation:
Supporting Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses, 74 Fed.
Reg. 64,619-01 (Dec. 8, 2009) (codified at 48 C.F.R. Parts 802, 804, 808, 809, 810, 813, 815,
817, 819, and 852) (effective Jan. 7, 2010); 75 Fed. Reg. 6098-01 (Feb. 8, 2010) (codified at 38
C.F.R. Part 74) (effective Feb. 8, 2010). The effect of those clarifications was the institution of
mandatory verification by CVE, even for businesses that may have previously self-certified. In
sum, VIP eligibility certification through CVE is governed by 38 C.F.R. Part 74, but CVE’s
approval may be challenged through an agency-level bid protest with OSDBU, as provided in 48
C.F.R. § 819.307.
The standards for initial certification and eligibility reevaluation are congruent respecting
ownership and control because, as noted supra, Part 819 incorporates by reference Part 74 for
guidance on “ownership and control issues.” Part 74 addresses ownership and control in great
detail, couching the eligibility criteria in terms of what CVE considers to be qualifying. See
C.F.R. §§ 74.3 (ownership), 74.4 (control). In answer to the question “Who does CVE consider
to control a veteran-owned small business?” Section 74.4 defines control as “the day-to-day
management and long-term decision-making authority for the VOSB.” 38 C.F.R. § 74.4(a).
Also, “CVE regards control as including both the strategic policy setting exercised by boards of
directors and the day-to-day management and administration of business operations . . . .
Individuals managing the concern must have managerial experience of the extent and complexity
needed to run the concern.” 38 C.F.R. § 74.4(b).
Part 74 also provides procedures for CVE to consider cancellation of VOSB status.
Cancellation proceedings may be triggered by CVE “[w]hen CVE believes that a participant’s
verified status should be cancelled prior to expiration of its eligibility term.” 38 C.F.R.
§ 74.22(a). CVE is required to give notice to the firm in question, which is provided a thirty-day
period in which to respond. § 74.22(b). CVE is obliged then to issue a decision setting forth the
specific facts and reasons for its result. § 74.22(c). An appeal process is provided. § 74.22(e).
The agency bid-protest procedures in the VAAR are more cryptic but comparable.
Protests relating to VOSBs or SDVOSBs “must be in writing and state specific grounds for the
protest.” 48 C.F.R. § 819.307(c)(1). They must be filed on or before the fifth business day after
bid opening in sealed-bid acquisitions or notification by the contracting officer of the apparently
successful offeror in negotiated acquisitions. § 819.307(c)(2). The regulation does not in terms
specifically provide an opportunity for the successful offeror to respond to the protest, but as this
case demonstrates, basic due process considerations apply to enable the successful offeror to be
heard. Paragraph (c)(3) of 48 C.F.R. § 819.307 is ambiguous in describing the consequences that
arise when OSDBU sustains a protest:
(3) If the Executive Director sustains a service-disabled veteran-
owned or veteran-owned small business status protest and the contract
has already been awarded, then the contracting officer cannot count the
award as an award to a VOSB or SDVOSB and the concern cannot submit
6
another offer as a VOSB or SDVOSB on a future VOSB or SDVOSB
procurement under this part, as applicable, unless it demonstrates to VA
that it has overcome the reasons for the determination of ineligibility.
§ 819.307(c)(1) (emphasis added). It is not apparent what opportunity a previously successful
offeror subject to a sustained protest would have to “overcome the reasons for the determination
of ineligibility,” id., either during the protest as such, or thereafter.
In this case, the divergent results produced by CVE and OSDBU cannot be attributed to
the application of a disparate standard or to any procedural distinction.
B. Standards for Preliminary Injunction
The court must consider four factors when contemplating whether to grant a preliminary
injunction: (1) likelihood of plaintiff’s success on the merits, (2) irreparable harm to plaintiff if
an injunction is not granted, (3) the balance of hardships, and (4) the public interest. Sciele
Pharma Inc. v. Lupin Ltd., 684 F.3d 1253, 1259 (Fed. Cir. 2012); see also Winter v. National
Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). Plaintiff must establish the existence of a
reasonable likelihood of success on the merits and irreparable harm in the absence of an
injunction, while the last two factors are not required but are weighed in the balance. See Altana
Pharma AG v. Teva Pharm. USA, Inc., 566 F.3d 999, 1005 (Fed. Cir. 2009) (“Although the
factors are not applied mechanically, a movant must establish the existence of both of the first
two factors to be entitled to a preliminary injunction.”). A preliminary injunction is “an
extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear
showing, carries the burden of persuasion.” Mazurek v. Armstrong, 520 U.S. 968, 972 (1997)
(quoting 11A Charles Alan Wright et al., Federal Practice and Procedure § 2948, at 129–30 (2d
ed. 1995)) (emphasis in the original).
1. Likelihood of success on the merits.
Plaintiff must demonstrate that it is more likely than not to succeed on the merits of its
claim to qualify for a preliminary injunction. See Revision Military, Inc. v. Balboa Mfg. Co., 700
F.3d 524, 526 (Fed. Cir. 2012) (holding that for matters unique to the Federal Circuit, a
preliminary injunction with the effect of altering the status quo must meet the standard of “more
likely than not,” not a “clear or substantial likelihood” standard as required by certain other
circuits in particular types of cases).
On the merits, KWV will have to prove that the government’s decision was arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law. 28 U.S.C.
§ 1491(b)(4) (adopting the standard of 5 U.S.C. § 706(2)(A)).9 KWV contends that OSDBU’s
determination was far less searching and careful than the prior verification by CVE, and relied
9
Plaintiff must also ultimately show that it was prejudiced by the government’s arbitrary
or unlawful conduct. See Banknote Corp. of Am., Inc. v. United States, 365 F.3d 1345, 1353
(Fed. Cir. 2004) (requiring a “prejudicial violation” of applicable statutes or regulations). Such
prejudice is discussed infra in the context of irreparable harm.
7
solely, and wrongly, on the assumption that Mr. Maron could not exercise effective control of
KWV when he spends six months and a day of each year in Florida rather than Rhode Island.
Pl.’s Mem. in Support of Pl.’s Emergency Mot. for Prelim. Inj. (“Pl.’s Mem.”) at 15. The
government counters that OSDBU’s decision was neither arbitrary and capricious nor contrary to
standards because OSDBU based its decision on a fact unknown to CVE at the time of CVE’s
VOSB certification, i.e., Mr. Maron’s residency, which came to light during the OSDBU
investigation. Hr’g Tr. 28:20-29:5 (Jan. 4, 2013); see also Def.’s Resp. to Pl.’s Mot. for
Preliminary Inj. (“Def.’s Opp’n”) at 6-7. Whether CVE actually lacked this information is
disputed by the parties.10 The record before CVE and produced with its decision does not place
Mr. Maron’s residency in any particular state, giving the court no indication as to whether CVE
was in fact aware of it at the time. See AR 1-517; Hr’g Tr. 33:14-25 (Jan. 4, 2013); Hr’g Tr.
22:9-23:10 (Dec. 20, 2012).
The OSDBU inquiry was markedly less thorough than that of CVE. The CVE
examination included a site visit in December 2011 to KWV’s headquarters to examine KWV’s
physical setting and to interview Mr. Maron and others, as well as to provide a context for
review of documentary records. See AR 495-515.2 (Letter from Dan Friend to Bruce St. John
(Dec. 19, 2011)); AR 1-159 (Initial Application for CVE Verification). Additionally, CVE
requested supplemental documentation from plaintiff, beyond what was filed with the application
for VOSB verification, and asked specific questions to illuminate certain areas of the application.
AR 160-61 (E-mail from Dawn Monahan to James Maron (Sep. 15, 2011)). KWV and Mr.
Maron provided the requested information and responded to CVE’s questions. AR 162-450
(Additional Documentation and Correspondence). After CVE initially declined to verify KWV
as a VOSB, AR 451-53 (CVE Denial Letter), Mr. Maron was permitted to cure the alleged
defects in his application by amending KWV’s by-laws, and to request reconsideration, AR 454-
94 (Correspondence and Documentation Regarding Reconsideration). By the time CVE issued
the VOSB certification for KWV on February 7, 2012, CVE had reviewed hundreds of pages of
documents, performed a site visit and interviews in December 2011, and had been corresponding
with Mr. Maron for nearly five months. See AR 516-17 (CVE Approval Letter). Aspects of the
CVE investigation were documented thoroughly and are now in the administrative record before
the court.
In comparison, the OSDBU investigation appears to have been cursory. No site visit was
conducted by OSDBU. See Hr’g Tr. 10:2-10; 11:19-12:1 (Dec. 20, 2012). No interviews were
conducted by OSDBU. Id. OSDBU afforded Mr. Maron an opportunity to respond to the
protest but did not follow up with any questions or concerns it may have had. Much of the
OSDBU decision is taken up by a word-for-word recitation of regulations found in Parts 819 and
74. AR 568-71. The findings themselves give few clues as to how OSDBU reached its decision,
stating merely that “[b]ecause construction requires the direct supervision of the work to be
10
KWV asserts that Mr. Maron discussed his residency during the interview conducted in
December 2011 in Rhode Island that was part of the inquiry which resulted in CVE’s verification
of KWV as a VOSB. Compl. ¶¶ 28-29. The government contends that Mr. Maron’s residency
was not known until the Alares protest flagged the issue for OSDBU, and that it was not known
to the CVE investigator at the time of the original certification. Hr’g Tr. 21:10-17 (Dec. 20,
2012).
8
performed, the location of the [veteran] is considered in determining whether the [veteran]
controls an applicant construction company.” AR 570 (emphasis added). This statement is
followed by a citation to a decision by the Small Business Administration’s (“SBA’s”) Office of
Hearings and Appeals (“OHA”) and a summary of Alares’ bid protest allegations. Id. As will be
discussed, the cited decision by SBA supports KWV’s position, not that of OSDBU, and the
protestor’s allegations turn on tenuous inferences. Importantly, OSDBU never even purports to
determine Mr. Maron’s actual level of involvement in the control of KWV.
By contrast, CVE’s detailed investigation focused on the extent and effectiveness of
Mr. Maron’s personal activities in relation to his control of KWV. Nevertheless, the government
urges that the OSDBU decision should control because OSDBU knew Mr. Maron resides in
Florida for just over half the year. Hr’g Tr. 21:10-17 (Dec. 20, 2012). That fact, plus the general
statement that “[t]he nature of construction requires on-site supervision and direct human contact
to adequately complete projects,” constitutes the sum of OSDBU’s rationale. AR 570.
The SBA decision, In the Matter of First Capital Interiors, Inc., SBA No. VET-112,
2007 WL 2438401 (2007) (“First Capital”), is instructive for what it decides as well as for what
it does not decide. The decision concludes that a service-disabled veteran did not control the
applicant construction firm. The veteran resided in Visalia, California, while the construction
company was based in Chillicothe, Ohio. 2007 WL 2438401, at *1. OSDBU considered that the
First Capital ruling was made simply “because [the veteran] lived thousands of miles from the
[company’s] headquarters.” AR 570. In actuality, SBA explicitly rejected the proposition that
distance alone could determine control. First Capital, 2007 WL 2438401, at *7 (“[N]either
OHA nor SBA maintains a concern cannot manage a job that is 2000 miles away from its
headquarters.” (emphasis added)). Rather, SBA took into account additional factors that
included the veteran’s seemingly full-time residence three time zones away from the company’s
situs, the lack of a long-distance management infrastructure, the absence of management
experience on the part of the veteran, and the circumstance that the veteran was simultaneously
self-employed at two other jobs, both of which were located in California. Id. at *7-8.11
Mr. Maron, unlike the veteran in First Capital, physically is present in Rhode Island,
where KWV is based, for nearly half the year and spends the remainder of his time in Florida,
both of which are in the same time zone. AR 540. While in Florida, Mr. Maron employs various
electronic means to keep track of the day-to-day business of KWV. Id.; Pl.’s Mem. at 16.12
KWV typically only performs one job at a time, with most of the work being performed when
Mr. Maron is in Rhode Island. Id. Additionally, during periods he spends in Florida, Mr. Maron
nonetheless travels to Rhode Island for “any meeting in which anything of importance is
discussed.” AR 540. He has ample management experience in construction, as his work history
11
SBA had jurisdiction in First Capital because it previously held reviewing authority
over VA’s agency-level bid protests. The transition from self-certification to certification by
CVE engendered the transfer of review from SBA to OSDBU. See 74 Fed. Reg. 64,619-01.
VA’s adoption of 48 C.F.R. Part 819 became effective Jan. 7, 2010. Id.12
As SBA’s decision in First Capital noted, “technology permits many types of control
beyond what w[as] possible years ago.” 2007 WL 2438401, at *5.
9
shows. See AR 434. Mr. Maron currently maintains no other jobs or positions, allowing him to
focus solely on KWV. See AR 434, 541. There is nothing in the record to suggest credibly that
Mr. Maron could not meet the requirements of the control standard found in Part 74 and
incorporated into Part 819, and the government has manifestly failed to articulate any other
rationale for denying KWV VOSB status. OSDBU neither “provided a coherent and reasonable
explanation of its exercise of discretion, Impresa Construzioni Geom. Domenico Garufi v.
United States, 238 F.3d 1324, 1333 (Fed. Cir. 2001), nor articulated a ‘rational connection
between the facts found and the choice made.’” Motor Vehicle Mfrs. Ass’n v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983).
Based on the foregoing analysis, the court finds that plaintiff is more likely than not to
succeed in proving that the government’s actions were arbitrary and capricious or not in
accordance with law.
2. Irreparable harm.
KWV contends that it will suffer irreparable harm by way of lost profits if it is not
granted injunctive relief. Pl.’s Mem. at 20-21. It has already suffered the loss of a contract
worth more than one-and-one-half million dollars, which it had previously been awarded. Id. at
21.13 More drastically, KWV represents that the loss of future work as a VOSB is likely to result
in its ultimate demise as a viable concern. Id. Removal from the VOSB list prevents it from
bidding on any future VOSB set-aside contracts. KWV represents its understanding that re-
verification as a VOSB takes between six months to one year, during which time it will lose
substantial business and income. Id. The injunctive relief contemplated here (setting aside
OSDBU’s removal of KWV from the VIP database) would circumvent this type of harm because
if it prevails, KWV would once again be eligible to compete for and to receive VOSB set-aside
contracts.
If KWV succeeds in this suit, as the court finds to be likely, the available remedy would
not encompass recoupment of lost profits, making lost profits an irreparable harm. See Hospital
Klean of Tex., Inc. v. United States, 65 Fed. Cl. 618, 624 (2005) (“[A] disappointed bidder
cannot recover lost profits . . . . Such loss of profit, stemming from a lost opportunity to
compete for a contract on a level playing field has been found sufficient to constitute irreparable
harm.”). In short, KWV will suffer irreparable harm if injunctive relief does not issue.
3. Balance of hardships.
The government has argued that setting aside OSDBU’s removal of KWV from the VIP
list would create an uncomfortable situation for VA when awarding contracts because of the
inherent uncertainty of KWV’s eligibility to perform on those contracts. Hr’g Tr. 10:12-20 (Jan.
4, 2013) (“[Plaintiff] would potentially submit a low enough bid that they would receive an
award, and then the government is in the position of having to either make the award or not, and
the only reason that the government wouldn’t make the award . . . is that they believe [plaintiff]
13
The government advises that this procurement, which it styles “Solicitation 1,” has been
awarded to another offeror. Def.’s Opp’n at 2.
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is not an eligible business for these contracts.”). If KWV is restored to the VIP list by the court,
however, VA would be obliged fully and fairly to consider KWV’s proposals in response to
contract solicitations, wholly putting aside OSDBU’s arbitrary action. In short, the
government’s argument assumes wrongly either that VA’s contracting officers would ignore this
court’s injunctive order or, alternatively, that KWV would fail to secure a permanent injunction
from the court. Neither assumed circumstance is likely to happen, or can be assumed to occur in
the future.
Given the severity of the irreparable harm KWV will suffer in the absence of relief and
its likelihood of success on the merits of its claim, the court finds that the balance of hardships
weighs in favor of granting a preliminary injunction.
4. Public interest.
The public has a strong interest in preserving the integrity of the procurement process.
Bona Fide Conglomerate, Inc. v. United States, 96 Fed. Cl. 233, 242-43 (2010); SAI Indus. Corp.
v. United States, 60 Fed. Cl. 731, 747 (2004). By ensuring that plaintiff has an opportunity to
compete fairly in VOSB set-aside procurements, this public interest will be served.
CONCLUSION
For the foregoing reasons, KWV’s motion for a preliminary injunction is GRANTED.
OSDBU’s decision dated October 24, 2012, rendering KWV ineligible for awards of contracts as
a VOSB, is set aside. VA shall restore KWV to its roster of approved VOSB entities. KWV’s
verified eligibility to participate in VA’s Veterans First Contracting Program shall be extended
by 72 days, to April 22, 2013, to take account of the days it was wrongfully removed from
eligibility.
With the agreement of the parties, the court has adopted an accelerated schedule for
consideration of the merits of this protest. This grant of preliminary relief should remain in
effect for a relatively brief time, expected to be no more than several months, until the court
resolves KWV’s claim for permanent relief and the government’s opposition to that claim.
Because this preliminary relief has been structured to avoid the harms that the government
indicated might arise with delays in VA’s procurement activities,14 KWV is not required to
provide security in any amount.
14
The government avers that the public interest would be “met by allowing the VA to
continue with the solicitation process uninterrupted.” Def.’s Opp’n at 10. Specifically, the
government advises that “[i]f 50 percent of [the] budget for non-recurring maintenance
construction projects, including [Solicitation 2], are not obligated through awards by March 31,
2013, the projects will lose funding.” Id. (quoting Decl. of Judith Ruggiero, Conracting Officer
(Jan. 17, 2013)). The court has framed the preliminary injunction to avoid causing any delay in,
or impairment of, VA’s procurement processes.
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It is so ORDERED.
s/ Charles F. Lettow
Charles F. Lettow
Judge
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