Good news for veteran-owned contractors: the VA’s SDVOSB and VOSB “Rule of Two” applies even when the VA issues a solicitation for a multiple-award IDIQ contract.
A recent GAO decision represents the latest instance where the VA’s failure to apply the Rule of Two and set-aside a procurement for SDVOSBs has been found to be unreasonable. In Spur Design, LLC, B-412245.3 (Feb. 24, 2016)*, GAO determined that the Rule of Two required the VA to set-aside a solicitation to award several multiple award indefinite-delivery/indefinite-quantity (“IDIQ”) contracts for SDVOSBs.
By way of background, the Veterans Benefits, Health Care, and Information Technology Act of 2006 (“2006 VA Act”) sought to rectify the VA’s then-on-going failure to meet its contracting goals relating to SDVOSBs and VOSBs. To do so, Congress set out a powerful provision, requiring the VA to set-aside a procurement for SDVOSBs or VOSBs whenever two or more such entities exist who will submit an offer at a fair and reasonable price that is the best value to the United States. This “Rule of Two,” as it is known, has been effective: since its enactment, the VA has met its SDVOSB and VOSB contracting goals.
Nonetheless, the VA has been reluctant to give the Rule of Two the full weight commanded by its unambiguous language. Most famously, the VA has refused to apply the Rule of Two to orders placed under existing GSA FSS contracts. The stakes in Kingdomware Technologies v. United States are high, as the VA purchases billions of dollars of goods and services via FSS orders annually
At issue in Spur Design was a VA procurement to obtain architect/engineer services at several of its medical centers located within Veterans Integrated Service Network (“VISN”) region 15. Under the Solicitation, the VA intended to award an “adequate number” of IDIQ contracts, each with a one-year base period and four one-year options. Task orders under each contract were to be capped at a $5 million maximum over the contract’s duration.
The VA contemplated awarding between 14 and 20 contracts under the procurement. The VA then conducted market research to determine the availability of small business concerns within the procurement’s geographic scope that could perform the services sought. Searching the SBA’s System for Award Management (“SAM”) database, the VA found 142 VOSB concerns that had listed (1) either of the procurement’s two operative NAICS codes and (2) either of the operative Product or Service Codes (“PSCs”). The VA, however, discounted this reliability of this research, because SAM allows for self-certification. So it then reviewed the VA’s own Veterans Information Pages (“VIP”) database and found 48 responsive SDVOSB concerns, 11 of which listed either of the operative PSCs. But because the VA had determined that at least 14 contracts were needed under the procurement, it concluded that these 11 SDVOSBs could not satisfy the requirements.
Following this database search, the VA issued a sources sought notice to determine the availability and technical capability of small businesses. Of the 46 small business respondents to the sources sought notice, nine were SDVOSB concerns whom the VA considered capable of meeting its needs. But again, because the VA thought that at least 14 contracts were needed, it determined that this was insufficient to set aside the procurement for SDVOSBs. Instead, the VA issued the solicitation as a total small business set-aside.
Spur Design, an SDVOSB, protested the VA’s failure to set-aside the procurement for SDVOSBs. The VA defended its set-aside determination on its belief that 14 contracts were necessary to perform the work. For multiple award IDIQ contracts, the VA said that the Rule of Two is satisfied “when there will be two or more SDVOSB offers per contract.” In other words, because the VA thought it would need to award at least 14 contracts under the procurement, the Rule of Two required at least 28 SDVOSBs likely to submit offers at fair and reasonable prices.
GAO rejected this interpretation. “Nothing in the language of the VA Act,” GAO wrote, “supports the agency’s position that in the context of multiple-award contracts, the VA Act’s Rule of Two requires set asides only when there will be two or more SDVOSBs or VOSBs offers per contract.” Neither do the VA’s implementing regulations contain any such limitation. And importantly, the VA’s market research revealed at least 20 SDVOSB concerns that the VA found to be capable of satisfying its requirements (11 from its search of the VIP database and 9 in response to the sources sought). The Rule of Two was thus plainly satisfied.
Congress’s intent in passing the 2006 VA Act “was to broadly foster participation in VA procurements by SDVOSB and VOSB concerns.” Given this intent, the VA’s attempt to circumvent the otherwise unambiguous applicability of the Rule of Two failed:
We cannot find reasonable the agency’s decision to not set aside this acquisition, or any portion of this acquisition, for SDVOSB or VOSB concerns because its market research yielded fewer of these concerns than the anticipated number of contract awards. We recognize it is within the agency’s discretion to determine the number of IDIQ contracts required to satisfy its needs. However, we see no basis to conclude that the agency has the discretion to ignore the requirements of the VA Act and the VA’s own implementing regulations because it anticipates making multiple awards under an IDIQ contract.
GAO sustained Spur Design’s protest and directed that VA revise its solicitation to include an approach that addresses its statutory requirement to set-aside the acquisition for SDVOSBs or VOSBs.
Spur Design reiterates the breadth of the Rule of Two: even under multiple-award IDIQs, the VA must set aside a procurement for SDVOSBs or VOSBs whenever two or more such entities will submit an offer at a fair and reasonable price. Let’s make no bones about it: this case is a win not only for Spur Design, but for the broader SDVOSB/VOSB community. Here is hoping this win is soon followed by a Supreme Court victory in Kingdomware.
* Spur Design was represented in its protest by Koprince Law LLC, whose attorneys operate the SmallGovCon blog. Ordinarily, SmallGovCon will not post about cases in which Koprince Law is involved. We made an exception—the first ever, in fact—for Spur Design because of its relation to the Kingdomware case and broader importance for SDVOSB and VOSB concerns. The facts of each bid protest are unique; discussion of Spur Design is not intended to be, and should not be considered as, a guarantee of success in any other matter.