Federal Circuit Affirms SDVOSB Priority Over AbilityOne

Ever since the Supreme Court’s Kingdomware decision was handed down in 2016, an important question has remained: who has priority at the VA for items on the AbilityOne List?

Yesterday, the Federal Circuit Court of Appeals provided the answer. The VA is required to prioritize service-disabled veteran-owned or veteran-owned small businesses when the Rule of Two is met, even when it buys items on the AbilityOne List.

The issue in PDS Consultants, Inc. v. United States was the conflict between the Javits-Wagner-O’Day Act (“JWOD”) and the Veterans Benefits, Healthcare, and Information Technology Act (the “VA Act”). By way of background, the JWOD was enacted in 1938 to provide employment opportunities for blind and severely disabled persons. It does so by requiring agencies (including the VA) to give contracting priority to nonprofits that employ blind and disabled persons when purchasing certain items (found on the AbilityOne List). Signed into law in 2006, the VA Act requires the VA to give contracting priority to SDVOSBs and VOSBs, including by restricted competitions issued under the Rule of Two. In other words, two different statutes mandate two different contracting priorities applicable to the VA—one favoring blind and disabled persons, the other SDVOSBs and VOSBs.

In 2010, procurements for certain eyewear products and services in two VA service networks (VISNs 2 and 7) were added to the AbilityOne List. In 2016, the AbilityOne list was expanded to include eyewear in VISN 6.

PDS Consultants—an SDVOSB that sells vision-related products—filed a bid protest in the Court of Federal Claims challenging this addition. In a resounding victory for SDVOSBs, the Court ruled that the VA is required to perform a Rule of Two analysis for all procurements that post-date the VA Act’s passage in 2006. In other words, the Court ruled that SDVOSBs have priority at the VA even under procurements for items on the AbilityOne List.

The United States (along with an AbilityOne entity) appealed this decision to the Federal Circuit. In general, the argument was one of statutory interpretation: according to the Government, the VA Act only applies in non-mandatory, competitive awards. Because it believes the JWOD mandates non-competitive procurements in favor of AbilityOne entities in certain instances, the Government argued that the VA is not required to give priority to SDVOSBs or VOSBs when buying from the AbilityOne list.

The Federal Circuit rejected the Government’s argument. Echoing the Supreme Court in Kingdomware, the Federal Circuit held that the VA Act “applies to all contracts—not only competitive contracts.” “[W]hen the Rule of Two is triggered,” the Federal Circuit continued, “the VA must apply competitive mechanisms to determine to whom the contract should be awarded.”

From this background, the Court was able to (fairly easily) resolve the apparent conflict between the two statutes. It noted first that the VA Act is a specific statute (applying only to VA procurements and triggered only when the Rule of Two is satisfied) while the JWOD is more general (applying to all federal agencies). And as a matter of statutory construction, a specific statute (like the VA Act) takes precedence over a more general one. Moreover, the Court found that applying the VA Act in a manner that gives precedence to SDVOSBs and VOSBs furthers the VA’s mission: to support and champion the veteran community.

What’s more, the Court noted that the VA Act was passed well-after the JWOD. And ordinarily, “when two statutes conflict, the later-enacted statute controls.” The Court was willing to “infer that Congress” knew of the JWOD when it passed the VA Act, and intended the VA Act “to control in its narrower arena, and the JWOD to dictate broader procurements outside of the VA.”

Finally, the Court found support for its conclusion in Kingdomware. It noted that the Supreme Court ruled the VA Act’s requirement to set-aside contracts in favor of SDVOSBs is mandatory and that the Rule of Two applies to all VA procurements. The Court noted:

Competitive or not, placing an item on the List, or choosing an item therefrom under the JWOD, is a form of awarding a contract. And under § 8127(d) and Kingdomware, the VA, in such a situation, is required to first conduct a Rule of Two analysis.

The Court concluded that, “where a product or service is on the List and ordinarily result in the contract being awarded to a nonprofit qualified under the JWOD, the [VA Act] unambiguously demands that priority be given to veteran-owned small businesses.”

There are, no doubt, important policy implications in this decision. But those decisions are for Congress to make. And having considered the statutory framework, the Federal Circuit has affirmed that SDVOSBs and VOSBs must be given contracting priority by the VA whenever the Rule of Two is met.