Superior Optical Labs, Inc. v. United States ( 2020 )

In the United States Court of Federal Claims
No. 20-1211C
(Filed Under Seal: October 21, 2020; Refiled: October 30, 2020*)
*************************************
*
SUPERIOR OPTICAL LABS, INC., *
*
* Bid Protest; Motion for Judgment on the
Plaintiff, * Administrative Record; Motion for
* Permanent Injunction; Veterans Benefits,
v. * Health Care, and Information
* Technology Act of 2006; 38 U.S.C. 8127;
THE UNITED STATES, * Rule of Two; SDVOSB and VOSB set-
* asides; AbilityOne program; Department
Defendant, * of Veteran Affairs Contracting
and * Preference Consistency Act; Small
* Business Set Aside; Statutory
WINSTON-SALEM INDUSTRIES FOR * Interpretation; Chevron Deference;
THE BLIND * Veterans Integrated Service Networks.
*
Defendant-Intervenor. *
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Robert J. Sneckenberg, with whom were John E. McCarthy Jr., and Rina M. Gashaw,
Crowell & Moring LLP, Washington, D.C., and Elizabeth Haws Connally, Connally Law,
PLLC, San Antonio, Texas, for Plaintiff Superior Optical Labs, Inc.
Vincent D. Phillips, Jr., Senior Trial Attorney, with whom were Jeffrey Bossert Clark,
Acting Assistant Attorney General, Robert E. Kirschman, Jr., Director, Douglas K. Mickle,
Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of
Justice, Washington, D.C., and Natica Chapman Neely, Staff Attorney, VA Office of
General Counsel, District Contracting National Practice Group, Washington, D.C., for
Defendant.
Jessica C. Abrahams, with whom was Dana B. Pashkoff, Faegre Drinker Biddle & Reath
LLP, Washington, D.C., for Intervenor Winston-Salem Industries for the Blind.
* This case was originally assigned to Judge Thomas C. Wheeler, who filed this opinion and order under seal
on October 21, 2020, which gave the parties 7 days to propose redactions. This case was transferred to Judge Edward
H. Meyers on October 28, 2020. This opinion is reissued for publication as Judge Wheeler entered it with redactions
of proprietary competition-sensitive information proposed by the parties. Redactions are indicated in the form of
[****].
OPINION AND ORDER
WHEELER, Judge.
This bid protest concerns the interpretation of a statutory exception contained in the
Department of Veterans Affairs Contracting Preference Consistency Act of 2020
(“Consistency Act”), Pub. L. No. 116-155, which amended the Veterans Benefits, Health
Care, and Information Technology Act of 2006 (“VBA”), Pub. L. No. 109-461. Under the
VBA, the Department of Veterans Affairs (“VA”) is required to set goals for providing
contracts to veteran-owned small businesses (“VOSBs”) and service-disabled veteran-
owned small businesses (“SDVOSBs”). The VBA includes a “Rule of Two” mandate,
which requires the VA to determine whether there are at least two veteran-owned small
businesses capable of performing the work prior to procuring any goods or services from
other providers. If the Rule of Two is satisfied, the VA must set-aside the procurement for
veteran-owned small business contractors.1
In this bid protest, Plaintiff, Superior Optical Labs, Inc. (“Superior Optical”),
challenges the VA’s decision to move the requirements that are currently set-aside for
veteran-owned small businesses back to the federal AbilityOne program, which requires
federal agencies to procure products and services from qualified non-profit agencies that
employ people who are blind or otherwise severely disabled. The requirements involve
prescription eyeglasses and optical services in the VA’s Veterans Integrated Service
Networks (“VISNs”) 2 and 7. As grounds for its protest, Superior Optical argues that the
VA’s decision to transition these requirements back to the AbilityOne program (1) violates
the recently enacted Consistency Act, (2) violates the VA’s own interpretation of the
Consistency Act detailed in its Class Deviation, and (3) is arbitrary and capricious. On
September 18, 2020, Winston-Salem Industries for the Blind (“IFB”), a qualified non-
profit AbilityOne entity set to takeover VISNs 2 and 7, intervened in this case.
Currently before the Court are the parties’ cross-Motions for Judgment on the
Administrative Record. For the reasons explained below, the Court finds that the VA’s
decision to transfer the VISN 2 and 7 requirements to the AbilityOne program violates the
Consistency Act. Accordingly, the Court GRANTS Superior Optical’s protest and its
accompanying request for a permanent injunction. The Court DENIES the Government’s
dispositive Motion for Judgment on the Administrative Record (“MJAR”).
1
For purposes of this opinion veteran-owned small businesses is used for both SDVOSBs and
VOSBs.
2
Background
I. AbilityOne Program
The Javits-Wagner-O’Day Act (“JWOD”), 41 U.S.C. §§ 8501–06, requires all
government agencies, including the VA, to purchase certain products and services from
designated non-profits that employ blind and otherwise disabled people. Congress enacted
the JWOD to provide employment opportunities for the blind and “other severely disabled”
individuals. Id. at § 8501. The JWOD created an independent agency, the Committee for
Purchase From People Who Are Blind or Severely Disabled (“AbilityOne Committee”), to
effectuate its purpose. Id. at § 8502. The AbilityOne Committee is charged with creating
a procurement list (“AbilityOne list”). Id. at § 8503(a). The AbilityOne list consists of
“suitable” products and services produced by non-profits that AbilityOne has identified as
non-profit entities that employ individuals who are blind or severely disabled. Id. at
§ 8503(a). Typically, a federal agency seeking to procure a product or service identified
on the AbilityOne list must acquire them from a designated AbilityOne provider. See id.
§ 8503. When compiling the AbilityOne list, the Committee works with agencies to
determine which products and services should be added. See id. at § 8503(d); PDS
Consultants, Inc. v. United States, 132 Fed. Cl. 117, 121 (2017), aff’d, 907 F.3d 1345 (Fed.
Cir. 2018).
II. The Veterans Benefit Act
On December 22, 2006, Congress passed the VBA to “increase contracting
opportunities” for veteran-owned small businesses. 38 U.S.C. § 8127(a). Specifically, it
directs the VA to set annual goals for procurement priority to veteran-owned small
businesses. Id. To that end, the VBA of 2006 creates a mandatory preference for veteran-
owned small businesses if the contracting officer, after conducting the Rule of Two
analysis, determines that there are at least two veteran-owned small businesses capable of
performing the work at a fair and reasonable price. See 41 U.S.C. § 8127(d)(1). The VBA
also provides VA contracting officers the ability to award contracts below certain dollar
thresholds to veteran-owned small businesses on a sole-source basis. Id. at § 8127(c); see
also id. at § 8127(b).
In 2016, the Supreme Court held in Kingdomware Technologies, Inc. v. United
States, 136 S. Ct. 1969 (2016), that the VA must conduct the Rule of Two Analysis when
procuring all VA goods and services “[e]xcept when the Department uses the
noncompetitive and sole-source contracting procedures in subsections (b) and (c)…”
Kingdomware Tech., 136 S. Ct. at 1977. In other words, if the requirements of the Rule
of Two were met the VA had to prioritize veteran-owned small businesses, not AbilityOne
suppliers, when procuring goods and services—even those on the AbilityOne list.
3
Shortly thereafter, in 2017, a service-disabled veteran-owned small business filed a
bid protest in this Court challenging the VA’s decision to purchase eyewear services from
AbilityOne provider IFB (defendant-intervenor in this case) in four VISNs, including
VISNs 2 and 7, at issue here, without first conducting a Rule of Two analysis. See PDS
Consultants, 132 Fed. Cl. at 119–20. In PDS Consultants, Inc. v. United States, the Court
resolved an apparent conflict between the JWOD’s requirement that federal agencies
purchase certain items from small businesses that employ blind and disabled individuals
and the VBA’s requirement that the VA limit competition for its procurement to veteran-
owned small businesses.
On May 30, 2017, Senior Judge Firestone found that the VA should have applied
the Rule of Two to all procurements that took place after the VBA passed. See id. at 128.
The Federal Circuit affirmed, stating, “where a product or service is on the [AbilityOne]
List and ordinarily would result in the contract being awarded to a nonprofit qualified under
the JWOD, the VBA unambiguously demands that priority be given to veteran-owned
small businesses.” PDS Consultants, Inc. v. United States, 907 F.3d 1345, 1360 (Fed. Cir.
2018).
III. The Consistency Act
In response to the Federal Circuit’s holding in PDS Consultants, Congress passed
the Consistency Act of 2020, amending the VBA. The purpose of the Consistency Act was
to prioritize blind and severely disabled entities by requiring the VA to use AbilityOne
non-profit providers, rather than prioritizing veteran-owned small businesses, when
procuring any products or services added to the AbilityOne list prior to December 22, 2006.
See 38 U.S.C. § 8127(a); 165 Cong. Rec. E1597-03, 2019 WL 6885484 (Dec. 17, 2019).
Specifically, the Consistency Act provided that the Rule of Two analysis is not required
for procurements of covered goods or services that were added to the AbilityOne list prior
to the enactment of the VBA in 2006. See 38 U.S.C. § 8127(d)(2)(A). The Act transitioned
all covered products and services on the AbilityOne list back to the AbilityOne providers.
However, in passing the bill, the Senate added an exception to protect some
requirements that the VA had already transitioned to veteran-owned small businesses. Id.
at § 8127(d)(2)(B). The Senate exception stated that if the VA awarded a contract for a
covered product or service to a veteran-owned small business pursuant to a Rule of Two
determination between December 22, 2006 and August 7, 2020, the VA could not transition
these requirements back to the AbilityOne program until such time as a new Rule of Two
analysis was conducted and the Secretary of the VA determined in writing that there was
no reasonable expectation that two or more veteran-owned small businesses could compete
for the work. See id. Specifically, the Senate’s exception states that “subparagraph (A)
[mandating contracting with an AbilityOne entity] shall not apply in the case of a covered
product or service for which a contract was—(I) awarded under paragraph (1) after
December 22, 2006; and (II) in effect on the day of the date of the enactment of the
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Department of Veterans Affairs Contracting Preference consistency Act of 2020.” Id. In
other words, the Senate’s amendment protects contracts that were already awarded to
veteran-owned small businesses as a result of a Rule of Two determination.
At issue here is § 8127(d)(2)(B)(i)(I)’s reference to “awarded under paragraph (1),”
requiring the VA to set aside certain requirements for veteran-owned small businesses.
While the parties agree that this clause references § 8127(d)(1), they disagree as to when a
contract satisfies § 8127(d)(1)’s “awarded under” requirement. Section 8127(d)(1) states:
Use of Restricted Competition.—(1) Except as provided in paragraph (2)
and in subsections (b) and (c), for purposes of meeting the goals under
subsection (a), and in accordance with this section, a contracting officer of
the Department shall award contracts on the basis of competition restricted
to small business concerns owned and controlled by veterans if the
contracting officer has a reasonable expectation that two or more small
business concerns owned and controlled by veterans will submit offers and
that the award can be made at a fair and reasonable price that offers best value
to the United States.
IV. Class Deviation
Since the enactment of the VBA, the VA has issued several regulations and policies
to assist contracting officers. For example, on August 14, 2020, the VA issued a Class
Deviation amending its VA Acquisition Regulation (“VAAR”) to implement the
Consistency Act. See Dkt. No. 30, Ex. 6 (VA’s Aug. 14, 2020 Deviation Memo, available
at https://www.va.gov/oal/docs/business/pps/deviationVaar20200814.PDF). The 2020
Class Deviation directs contracting officers to continue to conduct a Rule of Two analysis
before purchasing certain items on the AbilityOne list. This includes items that were
awarded to veteran-owned small businesses pursuant to a Rule of Two analysis during the
covered period. The memorandum explains:
In summary, the new legislation requires a contracting officer of the
Department to procure covered products and services on the Procurement
List maintained by the Committee for Purchase from People Who Are Blind
or Severely Disabled (the Committee), through the AbilityOne Program, as
a priority mandatory Government source. The legislation also provides an
exception [the Senate’s exception at § 8127(d)(2)(B)] when a covered
product or service was procured from an eligible Service-Disabled Veteran-
Owned Small Business (SDVOSB) or Veteran-Owned Small Business
(VOSB) as a result of a VA Rule of Two determination between the period
after December 22, 2006 and the day before the date of enactment of the Act,
August 07, 2020. In such a case, the covered product or service shall
continue to be procured under VA’s SDVOSB/VOSB set-aside program,
5
provided two or more SDVOSBs/VOSBs are expected to provide the same
or similar product at a fair and reasonable price, that offers the best value to
the United States.
Id. at 1–2.
V. The Facts
In response to the Federal Circuit’s decision in PDS Consultants, the VA conducted
market research and a Rule of Two determination for its prescription eyeglass requirements
in VISNs 2 and 7. After determining that there were at least two eligible veteran-owned
small businesses the VA awarded Superior Optical short-term sole-source contracts for
VISNs 2 and 7 to “immediately comply with PDS Consultants decision.” See AR Tab 7–
8. The VA further explained that “a short-term contract is considered to be in the best
interest of the Government in order to provide uninterrupted services, while pursuing a best
value contract solution. A competitive, long-term veteran-owned small business set-aside
solicitation is expected to be released on FBO on or around November 1, 2019.” AR Tab
8 at 24; see also AR Tab 7 at 19.
1. VISN 2
On January 8, 2006, prescription eyeglasses for VISN 2 were added to the
AbilityOne list. AR Tab 7 at 19. IFB, a qualified non-profit under the AbilityOne program,
was previously performing VISN 2. AR Tab 8 at 26. However, after the Federal Circuit’s
decision in PDS Consultants, the VA found that it was “no longer able to continue with the
current contract with [IFB] after the end of the existing option period (September 30,
2019).” Id. at 24. As a result, in May of 2019, the VA completed a Market Research
Report and a Justification and Approval (“J&A”) for VISN 2 to determine whether there
were two or more eligible veteran-owned small businesses capable of performing the work.
See AR Tab 7 at 14–21; AR Tab 8 at 22–27. The VA sent a Sources Sought Notice to four
potential veteran-owned small business contractors: AB Martin Services, Inc., LC Four
Enterprise, LLC, PDS Consultants, and Superior Optical. AR Tab 9 at 29. PDS
Consultants and Superior Optical responded that they were capable and interested in
fulfilling VISN 2’s requirements. Id. As a result of delays in conducting a long-term
procurement, the VA decided to proceed with a temporary sole-source award to Superior
Optical. AR Tab 8 at 24–25 (“At this time VISN 2 Downstate is pursuing a sole-source
short-term contract with PDS Consultants, Inc. and a decision was made to spread the
short-term requirements across the identified sources to provide as much opportunity to the
SDVOSB community as possible.”).
Superior Optical’s VISN 2 award began on October 1, 2019, and included a one-
year base period (until September 30, 2020) plus a six-month option (from October 1, 2020
to March 31, 2021). AR Tab 13 at 53. On July 17, 2020, Superior Optical received notice
6
that VISN 2 intended to exercise the option period and continue services from October 1,
2020 through March 31, 2021. AR Tab 17 at 163. However, on August 18, 2020, the VA
Office of General Counsel notified the contracting officer that under the newly enacted
Consistency Act, the VISN 2 requirement was a “covered product” and because the award
with Superior Optical was under § 8127(c) (a sole-source award) and not § 8127(d), the
VA was required to use an AbilityOne vendor. Id. As a result, the VA spoke with IFB on
August 21, 2020, and determined that it would fulfill VISN 2 beginning October 1, 2020.
Id.
2. VISN 7
Similar to VISN 2, the VA conducted market research and determined that there
were at least two veteran-owned small businesses, Superior Optical and PDS Consultants,
capable of fulfilling the VA’s requirements under VISN 7. AR Tab 22 at 188. Again the
VA referenced PDS Consultants, explaining that even when a product or service is on the
AbilityOne list and would typically be awarded to an AbilityOne provider, the VBA
“unambiguously demands” that the VA prioritize veteran-owned small businesses, which
“directly impacts” VISNs 2 and 7 contracts with IFB. AR Tab 7 at 19; AR Tab 22 at 188.
On September 15, 2019, the VA awarded the first VISN 7 bridge contract to
Superior Optical. AR Tab 23 at 192. The VA’s Independent Government Cost Estimate
for VISN 7 determined that a full year of requirements was almost $[**********]. AR
Tab 20 at 183. However, a short-term sole-source contract could not exceed $5 million.
See 38 U.S.C. § 8127(c). In an effort to provide the VA with more time to
conduct a competitive award, the VA awarded Superior Optical a six-month sole-
source contract (from September 15, 2019 through March 14, 2020) with a maximum
price of $4,957,798. AR Tab 23 at 192; AR Tab 24 at 258.
On March 13, 2020, the VA executed a J&A to award another two-month bridge
contract to Superior Optical. AR Tab 28 at 264–70. The VA planned to award a one-year
competitive service-disabled veteran-owned small business contract within the next 60
days. Id. at 269. Thus, the VA concluded that “[a] short-term contract is considered to be
in the best interest of the Government in order to provide uninterrupted services, while
pursuing a long-term contract solution.” Id. at 266. In its J&A, the VA noted that it had
already conducted market research and identified three vendors who were capable of
performing the work for the VISN 7 eyeglass service. Id. at 266–67. On March 18, 2020,
the VA issued Solicitation No. 36C24720R0002 for a one-year, 100% veteran-owned small
business set-aside VISN 7 procurement. Dkt. No. 30, Ex. 8.
On May 15, 2020, the VA again entered into a bridge contract with Superior Optical,
this time for two weeks (from May 15, 2020 through May 31, 2020). AR Tab 31. The VA
stated that it was “finalizing the Pre-Award Phase of Solicitation 36C24720R0002, which
is scheduled to be awarded on May 15, 2020 [the date the bridge contract was to begin];
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however, there will need to be a transition period to cover the phase in.” AR Tab 31 at
337–38; see also id. at 340 (explaining that the VA had completed the technical evaluations
and was in the process of finalizing the pre-award documents for the competitive one-year
SDVOSB contract).
The VA continued to experience delays in awarding a contract under Solicitation
36C24720R0002, and on July 15, 2020, issued another two-week award to Superior Optical
(from July 15, 2020 through July 28, 2020). AR Tab 37 at 409. According to the VA’s
July 15, 2020 J&A, Solicitation 36C24720R0002 was expected to be awarded in two days
on July 17, 2020. Id. at 412. The VA never finalized Solicitation 36C24720R0002 and
instead continued to extend the short-term bridge contract. AR Tabs 39–40. On August
21, 2020, the VA cancelled Solicitation 36C24720R0002. Dkt. No. 30, Ex. 8; AR Tab 17–
18. Currently, the VA issues orders to Superior Optical on a month-to-month basis, which
will end on October 31, 2020. AR Tab 22 at 188.
VI. Procedural History
At the parties’ request, the Court considered this protest on an expedited basis. The
Government submitted a certified copy of the administrative record on September 23,
2020. On September 25, 2020, Superior Optical filed a MJAR pursuant to Rule 52.1 of the
Court of Federal Claims (“RCFC”). On September 30, 2020, the Government and IFB
filed cross-motions for judgment on the administrative record. The Government and IFB
contend that the statute is clear, and § 8127(d)(2)(B) permits some contracts previously
awarded to veteran-owned businesses to remain with those businesses instead of
transferring to an AbilityOne provider. On the merits, they argue that the plain language
permits only competitively awarded contracts to remain with veteran-owned small
businesses, not noncompetitive sole-source contracts such as Superior Optical’s VISNs 2
and 7 contracts. Briefing concluded on October 8, 2020, and oral arguments were
conducted on October 14, 2020.
VII. Present Dispute
On September 16, 2020, Superior Optical filed a complaint in this Court claiming
that the VA’s decision to procure VISNs 2 and 7 through the AbilityOne program is in
violation of the Consistency Act and the VA’s August 14, 2020 Class Deviation. Compl.
¶ 2. The parties disagree on how to interpret “awarded under paragraph (1)” in the
exception contained in the Consistency Act at 38 U.S.C. § 8127(d)(2)(B). The parties
agree that “paragraph (1)” refers to § 8127(d)(1), which directs the VA to set-aside
procurements for requirements that meet the Rule of Two. That is the extent to which they
agree. At the heart of the disagreement is whether the Consistency Act’s exception at
§ 8127(d)(2)(B) is limited to competitively awarded contracts.
Superior Optical argues that the VA’s transition of VISNs 2 and 7 to the AbilityOne
program violates the “plain text” of the Consistency Act. Dkt. No. 30 at 26. According to
8
Superior Optical, “awarded under paragraph (1)” refers to the Rule of Two determination
required by § 8127(d)(1) “and is agnostic as to the specific contract type the VA ultimately
uses to fulfill the Rule’s mandate.” Dkt. No. 36 at 5. Superior Optical posits that
§ 8127(d)’s reference to subsections (b) and (c) merely indicates that the VA has the
“flexibility” to use noncompetitive procedures for awards under a certain dollar amount
but does not indicate that noncompetitive awards are necessarily excluded from § 8127(d).
See Dkt. No. 30 at 28–29; Dkt. No. 36 at 9–10. Once the VA determines that the Rule of
Two is applicable, Superior Optical contends the VA must then contract with a veteran-
owned small business but has the discretion to choose which type of contract to use. See
id. Superior Optical clarifies that it does not believe all noncompetitive awards will satisfy
§ 8127(d); rather, only those noncompetitive awards where the VA first conducted a Rule
of Two analysis and determined that two or more veteran-owned small businesses could
perform the work. Dkt. No. 36 at 9–10. Effectively, Superior Optical is saying that the
Senate exception in the Consistency Act turns on whether a Rule of Two determination
was made prior to the award; not whether competitive or noncompetitive procedures were
ultimately used. Id.
Even if the Consistency Act is ambiguous, Superior Optical argues that the VA
violated “the express text of the VA’s own Class Deviation.” Dkt. No. 30 at 33. Superior
Optical highlights that nowhere in the Class Deviation does it limit the Consistency Act to
only competitively awarded contracts. Dkt. No. 30 at 34; see also Dkt. No. 36 at 7. Rather,
the Class Deviation merely requires the VA to have (1) awarded a contract to a VIP-listed
veteran-owned small business and (2) conducted a Rule of Two determination. Dkt. No.
30 at 33–34. Superior Optical is a VIP-listed service-disabled veteran-owned small
business and the contracting officer made a determination that at least two VIP-listed
veteran-owned small businesses would submit offers for the same or similar product. See
AR Tab 7 at 20; AR Tab 9 at 29. Therefore, Superior Optical concludes that it also satisfies
the VA’s Class Deviation requirements.
To support its argument, Superior Optical includes a letter from Senator Roger F.
Wicker, who was involved in the drafting of the Senate amendment to the Consistency Act,
§ 8127(d)(2)(B). Dkt. No. 36, Ex. 12. Senator Wicker confirms that the goal was to
“protect Superior’s contracts (among others) from transition” and “the Senate’s focus was
on whether the VA had conducted a Rule of Two determination, not on whether a contract
was specifically issued as a sole source contract through a competition.” 2 Dkt. No. 36, Ex.
12. Superior Optical also includes a public statement by IFB regarding the Consistency
2
The Government filed a motion to strike Senator Wicker’s letter from the administrative record.
Dkt. No. 38. During oral arguments, the Court denied the Government’s motion, holding that it
was appropriate to include the letter as part of the court record in the protest. See Cannon v. Univ.
of Chicago, 441 U.S. 677, 688 (1979) (“Although we cannot accord these remarks the weight of
contemporary legislative history, we would be remiss if we ignored these authoritative expressions
concerning the scope and purpose [of the Act]….”).
9
Act, explaining that the amendment would “not enable IFB Solutions to regain the VA
contracts lost last fall or all of the optical lab jobs supporting those contracts.” Dkt. No.
30, Ex. 11 (Press Release, IFB Solutions, Protecting Jobs for the Blind (last visited Oct.
12, 2020) (available at https://ifbsolutions. org/our-news/jobsfortheblind/)).
The Government and IFB respond that the Senate exception at § 8127(d)(2)(B)
applies only when a contract was previously awarded under the competitive procedures
detailed in § 8127(d)(1). See Dkt. No. 31 at 21; Dkt. No. 39 at 10. They accuse Superior
Optical of conflating sole-source contracts under § 8127(c) with competitive awards under
§ 8127(d). See Dkt. No. 31 at 21; Dkt. No. 39 at 13. According to the Government and
IFB, paragraph (1)’s language stating, “except as provided in paragraph (2) and in
subsection (b) and (c) [sole-source awards],” “expressly excludes” noncompetitive sole-
source contracts. Dkt. No. 31 at 21–22; see also Dkt. No. 39 at 13. “The plain language
of the statutory exception extends only to awards made under section 8127(d)(1), not to
any award that could be construed as ‘the direct result of the VA’s Rule of Two
determination’ as Superior contends.” Id. Accordingly, because Superior Optical’s
contracts are noncompetitive sole-source contracts, it is unable to satisfy the prerequisite
for the Senate’s exception to apply and the VA must procure VISNs 2 and 7 from an
AbilityOne non-profit provider.
The Government and IFB also disagree with Superior Optical’s interpretation of the
VA’s Class Deviation. They argue that only contracts under the set-aside program are
eligible under the Senate exception. Dkt. No. 31 at 24. Under the Class Deviation “[i]f a
contract for a covered product was previously awarded to a VIP-listed SDVOSB or VOSB
after December 22, 2006 and in effect August 07, 2020, the requirement shall continue to
be procured as a SDVOSB/VOSB set-aside…” Dkt. No. 39 at 18 (emphasis in the original).
According to the Government and IFB, Superior Optical misreads the Class Deviation and
ignores the requirement that only those contracts initially procured through a set-aside are
eligible. Id. This means, the Government says, that the Class Deviation’s reference to set
asides necessarily implicates the restricted competition procedures laid out in § 8127(d)(1)
“as only that section talks about set-aside competitive awards.” Dkt. No. 31 at 24; see also
Dkt. No. 39 at 17–18.
Discussion
I. Standard of Review
The Tucker Act grants this Court subject-matter jurisdiction over bid protests. 28
U.S.C. § 1491(b)(1). In a bid protest, the Court reviews an agency’s decision pursuant to
the standards set out in the Administrative Procedure Act (“APA”). 28 U.S.C.
§ 1491(b)(4); 5 U.S.C. § 706. The APA provides that “a reviewing court shall set aside
the agency action if it is arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A).
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An agency’s decision does not violate the APA if the agency “provided a coherent
and reasonable explanation of its exercise of discretion.” Impresa Construzioni Geom.
Domenico Garufi v. United States, 238 F.3d 1324, 1332–33 (Fed. Cir. 2001). Further, an
agency must articulate a “rational connection between the facts found and the choice
made.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463
U.S. 29, 43 (1983) (citation omitted). The Court’s review is “highly deferential” to the
agency as long as the agency has rationally explained its award decision. Bannum, Inc. v.
United States, 91 Fed. Cl. 160, 169–70 (2009).
Even if the agency acted without a rational basis, the Court cannot grant relief unless
the agency’s action prejudiced the protestor. See Bannum, Inc. v. United States, 404 F.3d
1346, 1351 (Fed. Cir. 2005). The erroneous agency action prejudices a protestor if, but for
the agency’s error, there was a “substantial chance” that the agency would have awarded
the contract to the protestor. Alfa Laval Separation, Inc. v. United States, 175 F.3d 1365,
1367 (Fed. Cir. 1999) (internal citation omitted); see also Bannum, 404 F.3d at 1353.
The Court reviews an MJAR to determine whether “given all the disputed and
undisputed facts, a party has met its burden of proof based on the evidence in the
record.” DMS All–Star Joint Venture v. United States, 90 Fed. Cl. 653, 661 (2010). In
other words, in evaluating the parties' cross-motions, the Court considers whether the
“protestor has met its burden of proof that an award is arbitrary, capricious ... or violates
to prejudicial effect an applicable procurement regulation.” Tech. Sys. Inc. v. United
States, 50 Fed. Cl. 216, 222 (2001).
The Court may make findings of fact where necessary. See Bannum, 404 F.3d at
1356. The existence of a material issue of fact, however, does not prohibit the Court from
granting an MJAR, and the Court is not required to conduct an evidentiary
proceeding. See id. at 1357 (instructing the Court of Federal Claims to make factual
findings under RCFC 52 “as if it were conducting a trial on the record”). In this case, the
relevant facts are not in dispute.
II. The Senate’s Amendment to the Consistency Act is Clear
Superior Optical’s first argument in support of its MJAR is that the VA violated the
Consistency Act when it attempted to transition VISNs 2 and 7 to the AbilityOne program.
The Consistency Act was created in response to the Federal Circuit’s PDS Consultants
decision, requiring the VA to conduct Rule of Two analysis for all procurements after the
VBA was passed. 907 F.3d at 1356. The Consistency Act removed the requirement that
the VA conduct a Rule of Two analysis before awarding covered products or services that
were added to the AbilityOne list prior to the enactment of the VBA in 2006. The question
before the Court is whether, after the passage of the Consistency Act, the VA was required
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to set-aside all contracts awarded under a Rule of Two analysis for veteran-owned small
businesses, or just those that were competitively awarded.
Superior Optical understands the Consistency Act to “prevent the VA’s re-transition
of contracts already awarded to veteran-owned small businesses as a result of a Rule of
Two analysis.” Dkt. No. 36 at 7. Superior Optical explains that VISNs 2 and 7 were
“awarded under paragraph (1)” because the VA first conducted a Rule of Two
determination, next determined it was required to set both VISNs aside for veteran-owned
small business, and only then chose to use a sole-source award, an exception “expressly
incorporated in paragraph (d)(1).” Dkt. No. 30 at 28–29. Moreover, Superior Optical
argues that “at all points, the VA’s actions were guided by and made ‘under’ the
requirements of paragraph (d)(1).” Id.
The Government and IFB have a slightly different understanding: “section
8127(d)(1) refers only to competitions between SDVOSBs under section 8127(d)…a
concept that is antithetical to a sole source award, which is an exception to competition and
necessarily presupposed the existence of only one available source.” Dkt. No. 39 at 10–
11; see also Dkt. No. 37 at 7. In the Government’s view, § 8127(d)’s language that
subsection (c) is “excepted” from this paragraph indicates that sole-source awards cannot
fall under § 8127(d). Dkt. No. 37 at 7.
To determine whether the statutory language is plain and unambiguous, the Court
looks at “the language itself, the specific context in which that language is used, and the
broader context of the statute as a whole.” Robinson v. Shell Oil Co., 519 U.S. 337, 341
(1997); see also Muwwakkil v. Off. of Pers. Mgmt., 18 F.3d 921, 924 (Fed. Cir. 1994).
The Court’s analysis, therefore, begins with the language of the statute itself. See Robinson
519 U.S. at 340. The Government and IFB misread the clear language of § 8127(d)(1),
which is not limited to competitively awarded contracts. Rather, the section addresses any
contracts that were awarded pursuant to a Rule of Two determination. It also includes an
exception for contracts under a certain dollar amount, explaining that those awards may be
awarded on a sole-source basis.
Under the VBA of 2006, the VA had to perform a Rule of Two inquiry that favors
veteran-owned small businesses prior to awarding the requirement to another contractor.
See PDS Consultants, 907 F.3d at 1345; see also Kingdomware Techs., 136 S. Ct. at 1977.
The Consistency Act amended the VBA to create a preference for the blind and severely
disabled over veterans in certain instances, but the Senate included an exception setting
forth a mandatory preference for contracting with veteran-owned small businesses that
satisfy § 8127(d) and were executed during a certain time period. 38 U.S.C.
§ 8127(B)(i)(I)–(II).
Nowhere in the Senate exception at § 8127(B)(i)(I) does it limit awards only to those
using competitive procedures. Rather, the Senate exception applies to all contracts
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“awarded under paragraph (1) [§ 8127(d)(1)].” Id. at § 8127(B)(i)(I). Section 8127(d)(1)
directs the VA to conduct competitive set-aside procurements for requirements that meet
the Rule of Two. However, requirements under a certain dollar threshold may be awarded
through noncompetitive processes laid out in subsections (b) and (c). Id. at § 8127(d)(1).
The Government and IFB read too much into the phrase “except as provided…in
subsection (b) and (c)” when they try to extinguish sole-source awards from § 8127(d)(1).
Section 8127(d) merely indicates that the VA may exercise its discretion and choose not to
conduct a Rule of Two analysis when issuing awards under a certain dollar threshold. See
Kingdomware Techs., 136 S. Ct. at 1977 (“Except when the Department uses the
noncompetitive and sole-source contracting procedures in subsections (b) and
(c), § 8127(d) requires the Department to use the Rule of Two before awarding a contract
to another supplier.”). Based on this language, once any award is issued to a veteran-owned
small business pursuant to a Rule of Two determination it necessarily falls under § 8127(d).
All three parties cite PDS Consultants, which also dealt with VISNs 2 and 7. In
PDS Consultants, the Federal Circuit explained that except when using non-competitive
procedures under Section 8127(b) or (c), the VA must “use the Rule of Two before
awarding a contract to another supplier.” PDS Consultants, 907 F.3d at 1360 (quoting
Kingdomware Techs., 136 S. Ct. at 1977) (emphasis supplied in PDS Consultants). In
other words, the VA is not required, but may choose, to conduct a Rule of Two analysis
when issuing a sole-source award under subsection b or c. However, once the Rule of Two
is satisfied § 8127(d) applies. See PDS Consultants, 907 F.3d at 1358 (“§ 8127(d) applies
only when the Rule of Two is satisfied”).
The Court agrees with Superior Optical that Section 8127(d)(1), formerly § 8127(d),
refers to all contracts awarded pursuant to a Rule of Two analysis. Contrary to the
Government’s and IFB’s assertion, § 8127(d)(1) is not limited only to those contracts that
were awarded pursuant to a Rule of Two analysis and on the basis of competition. Dkt.
No. 31 at 13; Dkt. No. 39 at 18. Under the VBA, the VA must “limit competition to
veteran-owned small business when the Rule of Two is satisfied,” period. PDS
Consultants, 132 Fed. Cl. at 127. The Consistency Act’s main goal was to ensure that in
some instances the blind and severely disabled had preference over veteran-owned small
businesses and to limit further transition of work away from the AbilityOne program as a
result of the broad application of the Rule of Two in PDS Consultants. See 165 Cong.
Rec. E1597-03, 2019 WL 6885484 (Dec. 17, 2019). However, the Consistency Act’s
language in its final form is a compromise and included an exception to protect certain
contracts that had already been transitioned to veteran-owned small businesses.
The Court in PDS Consultants found that the preference for veteran-owned small
businesses overrode the general contracting preference for the blind and visually impaired.
See 907 F.3d at 1359. Although Congress enacted the Consistency Act in direct response
to PDS Consultants and amended the VBA to provide a preference for the blind and
visually impaired in some instances, it does not change the fact that § 8127(d)(1) is not
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limited to competitively awarded contracts. It seems clear that Congress’ intent in adding
the exception to the Consistency Act was to prevent the VA from transitioning contracts
previously awarded to veteran-owned small businesses as a result of a Rule of Two analysis
back to the AbilityOne program. The Government and IFB concede that VISNs 2 and 7
were awarded pursuant to a Rule of Two analysis which determined that at least two
veteran-owned small businesses were capable of performing the requirements at a fair and
reasonable price. AR Tab 7 at 20; AR Tab 28 at 266. As a result, the VA understood that
it was required to set -aside the requirement for a veteran-owned small business and only
chose to issue a sole-source award “to immediately comply with the PDS Consultants
decision” but “inten[ded] to competitively award a long-term VISN-wide contract that
would be a total SDVOSB set-aside.” AR Tab 7 at 20.
Moreover, there is no indication that Congress meant to distinguish contracts
awarded competitively pursuant to a Rule of Two analysis versus those awarded
noncompetitively. Although the statements of one legislator are of limited persuasive
power, they are, nonetheless, relevant, particularly here where the legislative history is
sparse. See Fed. Energy Admin. v. Algonquin SNG, Inc., 426 U.S. 548, 564 (1976); Pacific
Gas & Elec. Co. v. Energy Res. Conserv. & Dev. Comm’n, 461 U.S. 190, 220 n.23 (1983).
Senator Roger F. Wicker, who was “intimately involved in the drafting of the Senate
amendment” explained that “[i]n drafting § 8127(d)(2)(B), the Senate’s focus was on
whether the VA had conducted a Rule of Two determination, not on whether a contract
was specifically issued as a sole source contract or through competition.” Dkt. No. 36, Ex.
12; see also North Haven Bd. of Educ. v. Bell, 456 U.S. 512, 530–31 (1982). Further
supporting Superior Optical’s contention that Congress’s primary concern was ensuring
contracts awarded pursuant to a Rule of Two determination—irrespective of the type of
procedures—were set aside for veteran-owned small businesses. While these statements
are by no means dispositive, they shed some light on the intent of the intended scope of
§ 8127(d)(2)(B) and lend credence to Superior Optical’s interpretation of the Consistency
Act. See Brock v. Pierce Cty., 476 U.S. 253, 263 (1986); United States v. O’Brien, 391
U.S. 367, 383 (1968).
Accordingly, based on the language of § 8127(d)(1), all requirements awarded
pursuant to a Rule of Two determination and awarded after December 22, 2006 and in
effect before August 7, 2020, shall continue to be set aside for veteran-owned small
businesses until such time as the Rule of Two is no longer satisfied.
III. The Chevron Method of Statutory Interpretation
Even if the statute is ambiguous, Superior Optical’s protest would still succeed. See
Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 (1984). Applying
Chevron deference, the Court first determines “whether Congress has directly spoken to
the precise question at issue. If the intent of Congress is clear, that is the end of the matter;
for the court, as well as the agency, must give effect to the unambiguously expressed intent
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of Congress.” Id. at 843. If the statute is ambiguous, the Court then should defer to an
agency’s interpretation of the statutory language, provided that interpretation is reasonable.
See id. at 842–43; United States v. Mead, 533 U.S. 218, 229 (2001).
The only reason the Government can even make the argument that VISNs 2 and 7
do not satisfy § 8127(d)(1) is because the VA’s actions led to extensive delays and
ultimately a failed competitive solicitation for veteran-owned small businesses. See AR
Tab 8 at 24; AR Tab 7 at 19. The VA continued to make empty promises to Superior
Optical, assuring it that a competitive award was forthcoming while extending what were
promised to be temporary bridge contracts just to pull the rug out from under Superior
Optical. Indeed, the VA’s conduct, through its Class Deviation and continued promise to
conduct a competitive procurement, further undermines the Government and IFB’s
position. See Myer v. Holley, 537 U.S. 280, 281 (2003) (deferring to agency’s reasonable
statutory interpretation); Joint Venture of Comint Sys. Corp. v. United States, 100 Fed. Cl.
159, 165 (2011) (“[W]ithin the bid protest context [] this court has adopted a flexible
approach…in putting together the evidence that will be considered…balancing the limited
nature of the court's review with the competing need to recognize potential exceptions to
treating the agency's submission as the four corners of the inquiry.”) (citation and
quotations omitted). For example, after PDS Consultants, the VA stated in its J&A that
when the Rule of Two is satisfied, it “unambiguously demands” that the requirement be set
aside for veteran-owned small businesses. AR Tab 7 at 19; Tab 8 at 24; Tab 22 at 188.
The VA then used its discretion to issue a sole-source award in compliance with what is
now paragraph 1 of the Consistency Act. AR Tab 7 at 20.
Furthermore, the VA’s Class Deviation explains that where a covered product or
service was procured as a result of a Rule of Two determination during the relevant period,
the “covered product or service shall continue to be procured under the VA’s
SDVOSB/VOSB set-aside program, provided two or more SDVOSBs/VOSBs are
expected to provide the same or similar product at a fair and reasonable price.” Dkt. No.
30, Ex. 6. The Government and IFB argue that the reference to the set-aside programs
“make clear that the contract had to initially be procured through a restricted competition
(i.e. a “set-aside”).” Dkt. No. 39 at 18; see also Dkt. No. 31 at 23–24. The Government’s
attempt to redefine the “set-aside program” to enhance its argument is unpersuasive. The
sentence preceding the reference to the set-aside program defines the “exception” as one
applying to covered products or services procured from veteran-owned small businesses
“as a result of a VA Rule of Two determination between the period after December 22,
2006 and the day before the date of enactment of the Act, August 7, 2020.” Id.
The VA’s Class Deviation says nothing about competitive awards. Instead, it
focuses only on contracts that were issued pursuant to a Rule of Two determination and
thus had to be “set-aside” for veteran-owned small businesses. Here, both VISNs 2 and 7
were issued pursuant to a Rule of Two determination during the covered period. AR Tab
8 at 25; AR Tab 22 at 188. The fact that the Government then chose to issue short-term
15
bridge contracts—while it finalized the pre-award phase of a competitive solicitation for
VISN 7—does not negate the fact that the Rule of Two determination was met and the VA
had already “set-aside” those requirements for veteran-owned small businesses. See AR
Tab 14 at 56 (VISN 2 contract indicating that Superior Optical’s sole-source award was
“set aside 100% for service-disabled veteran-owned small business”); AR Tab 23 at 192
(VISN 7 contract indicating the same). Therefore, in giving meaning to the words “set-
aside program,” the Court must be mindful of the VBA’s broader purpose to “increase
contracting opportunities for small business concerns owned and controlled by veterans
and…by veterans with service-connected disabilities” and the fact that the Consistency Act
was the result of a compromise. 38 U.S.C. § 8127(a)(1). In sum, even if the statutory
language is ambiguous, which it is not, the Court is deferring to the VA’s earlier reasonable
interpretation.
Under all these circumstances, the Court cannot say that Superior Optical’s
conclusion is incompatible with the “exception” to the Consistency Act. Accordingly,
Superior Optical’s Motion for Judgment on the Administrative Record is GRANTED.
IV. Propriety of Injunctive Relief
Under its bid protest jurisdiction, the Court has the power to issue injunctive relief
pursuant to 28 U.S.C. § 1491(b). See PGBA, LLC v. United States, 389 F.3d 1219, 1223
(Fed. Cir. 2004) (“We give deference to the Court of Federal Claims’ decision to grant or
deny injunctive relief, only disturbing the court’s decision if it abused its discretion.”). In
deciding whether to grant a permanent injunction, a court considers (1) whether the
plaintiff has succeeded on the merits; (2) whether the plaintiff will suffer irreparable harm
without an injunction; (3) whether the balance of the hardships favors an injunction; and
(4) whether an injunction is in the public interest. Id. at 1228–29 (citation omitted).
First, for the reasons stated above, Superior Optical has succeeded on the merits.
Second, Superior Optical would suffer irreparable harm if the Court does not issue an
injunction. The “loss of potential work and profits from a government contract [can]
constitute[] irreparable harm.” Macaulay-Brown, Inc. v. United States, 125 Fed. Cl. 591,
606 (2016) (citation omitted). The relevant inquiry is whether a plaintiff has an adequate
alternative remedy. Id. Here, the VA transferred the VISN 2 and 7 requirements to the
AbilityOne program in violation of the Consistency Act. Thus, Superior Optical will lose
the opportunity to compete for VISNs 2 and 7 without injunctive relief. Furthermore,
Superior Optical’s loss of potential profits constitutes irreparable injury for purposes of
injunctive relief. See MORI Assocs., Inc. v. United States, 102 Fed. Cl. 503, 504 (2011).
Superior Optical states that these contracts represent more than [**] percent of its
revenue and it has already invested over $[*********] in equipment, facilities, and
personnel to meet the VA’s requirements and continue to compete for these requirements
in the future. Dkt. No. 30 at 40–42.
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Third, the balance of hardships favors Superior Optical. Superior Optical is
currently performing the VISN 2 and 7 contracts and injunctive relief will simply maintain
the status quo while the VA conducts a lawful procurement. See HP Enter. Servs., LLC v.
United States, 104 Fed. Cl. 230, 245 (2012). The VA is accustomed to bridge contracts
with Superior Optical and can avoid any interruptions in the VISN 2 and 7 requirements
through additional short-term contracts. Thus, setting aside the AbilityOne placement will
not result in a severe hardship for the VA.
Finally, the public has a profound interest “in preserving the integrity of the
procurement process by requiring the government to follow its procurement
regulations.” Hosp. Klean of Texas, Inc. v. United States, 65 Fed. Cl. 618, 624 (2005); see
also DGR Assocs., Inc. v. United States, 94 Fed. Cl. 189, 211 (2010). The VA acted in
violation of the law when it transferred the VISN 2 and 7 requirements to the AbilityOne
program; therefore, it is in the public interest for the Court to correct the illegality and
prevent the contract with IFB from proceeding. The VA must issue a new solicitation and
Superior Optical may compete for the award. Accordingly, balancing the harm to the
Government against the public interest served in maintaining the integrity of the
procurement process supports the issuance of a permanent injunction.
V. Permanent Injunction
The Department of Veterans Affairs (VA) is ENJOINED from awarding contracts
to a source designated under chapter 85 of title 41 for the VA VISN 2 Upstate requirement
for prescription eyeglasses and VISN 7 requirement for prescription eyeglasses and
optician services that are covered products and services (as defined in 38 U.S.C.
§ 8127(d)(2)(C)) absent a determination as set forth in 38 U.S.C. § 8127(d)(2)(B)(ii) by the
Secretary of the VA that when the current contracts for those requirements expire or are
terminated there is no reasonable expectation that, as described in 38 U.S.C.
§ 8127(d)(1)—(I) two or more small business concerns owned and controlled by veterans
will submit offers; and (II) the award can be made at a fair and reasonable price that offers
best value to the United States.
Conclusion
Based upon the foregoing, the Court GRANTS Superior Optical’s Motion for
Judgment on the Administrative Record and motion to permanently enjoin the VA from
transitioning the VISN 2 and 7 requirements to the AbilityOne program. The Court
DENIES the Government’s and IFB’s Motions for Judgment on the Administrative
Record. The Clerk of the Court is directed to enter judgment for Superior Optical. No
costs.
Within seven days, on or before October 28, 2020, counsel for the parties shall
carefully review this opinion for any proprietary, confidential, or other protected
information, and submit to the Court proposed redactions, if any, before the opinion is
17
released for publication. The Court has prepared this opinion with the intent of disclosing
the entire contents to the public. Therefore, any proposed redactions must be well
supported with an explanation of the specific reasons and authorities.
IT IS SO ORDERED.
s/ Thomas C. Wheeler
THOMAS C. WHEELER
Judge
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