As I briefly reported last night, in a crushing blow to service-disabled veteran-owned small businesses, the U.S. Court of Federal Claims has overturned the GAO’s Aldevra decisions.

Judge Nancy Firestone, ruling in Kingdomware Technologies, Inc. v. The United States, No. 12-173C (Nov. 27, 2012), held that the VA reasonably interpreted the Veterans Benefits, Health Care, and Information Technology Act of 2006 as not requiring consideration of a SDVOSB set-aside before the VA procures goods and services under the Federal Supply Schedule.  For SDVOSBs, the Kingdomware Technologies ruling means that the VA’s much-ballyhooed “Veterans First” acquisition policy means little more than “Veterans First (If We Feel Like It).”

The Kingdomware Technologies case involved a VA procurement for an Emergency Notification Service for Veterans Integrated Service Network 5.  Without first conducting market research to determine whether two or more SDVOSBs could satisfy the requirement, the VA elected to procure the ENS using the FSS.  The VA awarded the contract to Everbridge Inc., a FSS vendor.

After the VA announced the award, Kingdomware Technologies filed a GAO bid protest, objecting to the award on the basis that, by failing to conduct SDVOSB market research prior to using the FSS, the VA had violated the 2006 VA Act.  On May 30, 2012, the GAO sustained the protest.  The VA subsequently informed the GAO and Kingdomware that it would not follow the GAO’s decision.

Kingdomware, which had previously filed an initial complaint with the U.S. Court of Federal Claims, amended its complaint after the GAO’s decision.  At a status conference with Judge Firestone, Kingdomware and the VA subsequently agreed that they would not dispute the underlying facts of the ENS claim, allowing the judge to proceed solely on the legal question of whether the VA was required to satisfy the “rule of two” with respect to SDVOSBs before procuring the ENS using the FSS.

Unfortunately for SDVOSBs, Judge Firestone answered the legal question in the VA’s favor.

She wrote that the question must be decided under the legal framework established by the U.S. Supreme Court in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).  Under that framework, when a judge is presented with a question of an agency’s statutory interpretation, the judge is to first ask whether Congress directly spoke to the issue at hand.  If not, the judge must then decide whether the agency’s interpretation was reasonable.

Judge Firestone first rejected Kingdomware’s argument that the 2006 VA Act is unambiguous.  She wrote that “the 2006 Act must be construed in light of its goal-setting provisions and thus the statute is at best ambiguous as to whether it mandates a preference for SDVOSBs and VOSBs for all VA procurements.”  Judge Firestone acknowledged that the 2006 VA Act uses the phrase “shall award” in one place, but held that this phrase “must be read in connection with the other terms in the 2006 Act, which demonstrate that the Act is goal-setting in nature.”

Judge Firestone also pointed out that the 2006 VA Act does not specifically address the FSS.  She wrote, “in enacting the 2006 Act, the court must presume that Congress was aware of the historic exception of the FSS from small business set-asides and cannot presume, as plaintiff urges, that Congress intended to extinguish the exception by its silence.”  The result, the judge determined, “is a legislative gap left for the agency to fill.”

Having concluded that the 2006 VA Act does not directly address the legal question at issue, Judge Firestone then determined that the VA’s interpretation of the statute was reasonable.  She wrote that the VA’s interpretation “is a reasonable use of the discretion implicitly granted by the statute, and is entitled to deference.”

In sum, Judge Firestone held: “the court respectfully disagrees with the GAO’s interpretation of the 2006 Act in the case at hand, and finds that the VA’s decision not to set aside the ENS contract at issue was not arbitrary, capricious, or contrary to law.”  Judge Firestone awarded summary judgment in favor of the VA.

So what is next for disappointed SDVOSBs?  Three possibilities seem to exist.

First, Kingdomware could challenge the court’s ruling by appealing to the U.S. Court of Appeals for the Federal Circuit.  The VetLikeMe news release indicates that Kingdomware is considering this option.

Second, Congress could step in and amend the VA Act, eliminating the supposed ambiguity that served as the underpinning for Judge Firestone’s ruling.  Such a result would likely take a good deal of lobbying on the part of SDVOSBs, and would undoubtedly by strenuously opposed by the VA.

Third, the Kingdomware Technologies result could be allowed to stand.  This, of course, would enshrine  “Veterans First (If We Feel Like It)” as the law of the land–hardly what SDVOSBs hope for from the very agency created to assist them.

So, after more than a year, the GAO versus VA Aldevra saga has ended, and not with the result SDVOSBs expected.  Where we go from here remains to be seen.