In late 2017, we wrote that the VA was considering using tiered evaluations to simultaneously 1) comply with the VA’s statutory Rule of Two (and Kingdomware), and 2) address situations in which SDVOSBs and VOSBs might not offer “fair and reasonable” pricing.
Since then, the VA has instituted the tiered evaluation process for certain solicitations, using one of three approaches:
- Tiered Evaluation for SDVOSBs and VOSBs only: Offers made by SDVOSBs are first evaluated. If no SDVOSB submits an offer, or none would result in a award at a fair and reasonable price, then the VA evaluates offers made by VOSBs. If none are submitted, or none would result in a fair and reasonable price, the solicitation is cancelled and resolicited.
- Tiered Evaluation for SDVOSBs, VOSBs, and small business concerns: This approach first evaluates SDVOSB and VOSB offers as described above. But if no SDVOSB or VOSB submits an offer (on none are submitted at a fair and reasonable price), then the VA evaluates proposals from other small businesses, with 8(a) participants and then HUBZone small business concerns being given priority over other small business concerns as required by 38 U.S.C. 8127(i). If none are submitted by these types of entities, then the solicitation is cancelled and then resolicited as an unrestricted procurement.
- Tiered Evaluation for SDVOSBs, VOSBs, small business concerns, and large business concerns: This approach first evaluates SDVOSBs, VOSBs, and small businesses as described above. But if no SDVOSB, VOSB, or small business submits an offer (or none would result in a fair and reasonable price), then the VA evaluates offers from large business concerns. If none are submitted, then solicitation is cancelled and additional market research is conducted to inform a follow-on acquisition strategy.
The VA justifies these tiered evaluation approaches because they may prevent procurement delays. For example, if VA uses a tiered evaluation approach that includes SDVOSBs, VOSBs, small business concerns, and large business concerns, the VA doesn’t have to reissue another solicitation if no SDVOSB or VOSB submits a reasonable offer.
Of course, the practice remains controversial because the tiered evaluation approach isn’t a true set-aside for SDVOSBs. Some argue, for example, that the VA could simply rule out SDVOSB or VOSB offers as not fair and reasonable based on more advantageous pricing offered by non-SBVOSB/VOSB small business concerns (or perhaps even large business concerns) for the same solicitation.
In addition, whether the tiered approach complies with the Supreme Court’s decision in Kingdomware has been an open question–until now. Indeed, a recent case from the Court of Federal Claims supports VA’s use of a tiered evaluation scheme for procurements.
In Land Shark Shredding, No. 18-1568C (Fed. Cl. Mar. 21, 2019), the VA issued a solicitation for a firm, fixed-price FSS contract for on-site document shredding and pill bottle destruction for VA facilities in Florida. The solicitation noted that it was “a Service Disabled Veteran Owned Small Businesses (SDVOSB) set-aside with Small Business Set-aside using a tiered or cascading order of preference.” The tiers of preference were as follows: SDVOSBs, then VOSBs, then all other small businesses, then all other businesses. (In essence, it followed the third approach described above.)
Three offerors submitted proposals: Land Shark (an SDVOSB), a non-SDVOSB small business, and a large business. The SDVOSB’s price was $2.8 million, while the small business’s price was $474,000 (the large business’s price was somewhere in between the two). The small business’s price was closest to the VA’s independent government cost estimate of $490,000. Ultimately, the small business was awarded the contract.
In its protest, Land Shark raised several arguments. Here we’ll focus solely on protester’s two arguments relating to the VA’s tiered evaluation scheme.
First, Land Shark argued that the VA erred by comparing its price to other non-SDVOSB offerors. In Land Shark’s view, this process violated the holding in Kingdomware. In response, the VA argued that because the comparison of quotes was a methodology established by the solicitation, Land Shark should have raised the issue in a pre-award protest.
The Court did not decide whether the protest was untimely, but went right to the merits. In doing so, the Court found that the Kingdomware doesn’t address price comparisons or instruct the VA how it should determine that an SDVOSBs price is fair and reasonable. Specifically, the Court held:
The court agrees with the government that plaintiff has not cited any authority which supports its position. Kingdomware does not address price comparisons, in general, or the specific question of how the VA should determine that a SDVOSB’s prices are fair and reasonable. The Federal Acquisition Regulation (FAR) provision cited by plaintiff is a policy statement that does not regulate procedures for the price evaluation of proposals in procurements such as this one. In sum, plaintiff objects to the price comparison conducted by the VA here because it does not do enough, in plaintiff’s view, to secure government contracts for SDVOSBs. That is a policy argument, unmoored from statute or regulation. Without more, that policy argument is an insufficient ground for this court to invalidate a procurement decision of a federal agency.
Second, Land Shark attacked the use of tiered evaluation process head on. In part, it argued that the process violated the Rule of Two and Kingdomware.
But again, the Court was unconvinced and found that the VA did not violate the Rule of Two:
The VA in this procurement conducted a Rule of Two analysis, as required by Kingdomware, but the VA did not find that this procurement could be entirely set aside for veteran-owned businesses. . . . As defendant notes, the solicitation clearly indicated that, in addition to veteran-owned small businesses and SDVOSBs, small businesses and large businesses were welcome to apply. . . . The court sees no violation of Kingdomware in the agency’s Rule of Two analysis, its use of a cascading system of preferences placing SDVOSBs in the first tier, or in the selection of [the small business] as contract awardee.
While this decision certainly lends support to the VA’s use of a tiered evaluation procurements, it isn’t a wholesale endorsement. The analysis may have been different if Land Shark had, say, offered a fair and reasonable price (the Court found that its price was not fair and reasonable) or, perhaps, if Land Shark had leveled a better-advocated attack against the practice in the context of a pre-award protest (which would have concentrated purely on the legal validity of the tiered evaluation process without the distracting factual issue of fair and reasonable prices).
That said, the decision overall favors the VA. Another challenge–hopefully one that is better planned and executed–will likely arise later. But for now, the VA is unlikely to change course. So expect to see the VA’s continued use of the tiered evaluation scheme in, at least, the near future. If anything changes, we’ll be sure to let you know.
Questions about this post? Or need help with a government contracting legal issue? Email us or give us a call at 785-200-8919.
Looking for the latest government contracting legal news? Sign up here for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook.