The U.S. Department of Veterans Affairs’ award of a contract to a small business under simplified acquisition procedures was improper because it appeared that a number of service-disabled veteran-owned small businesses could have filed the requirement, according to a recent GAO bid protest decision.

Unlike the ongoing Aldevra cases, in which the VA has purposefully continued making awards to non-SDVOSBs under the Federal Supply Schedule in the face of repeated GAO decisions stating that the practice is illegal, the GAO’s decision in Phoenix Environmental Design, Inc., B-407104 (Oct. 26, 2012), suggests that the VA simply did not understand how the agency’s own set-aside rules are supposed to work, at least in the context of a simplified acquisition.

The GAO’s decision in the Phoenix Environmental case involved a VA purchase order for bagged fertilizer.  Because the acquisition was valued at only $4,382, the purchasing agent used simplified acquisition procedures to acquire the fertilizer.

The purchasing agency searched the VA VetBiz database for possible vendors, and located 16 potential SDVOSB suppliers.  She then reached out to three of those vendors seeking quotations.  Phoenix Environmental Design, Inc., was not one of the three firms contacted.

Two of the three SDVOSBs contacted by the VA decided not to submit quotations, and the third submitted a quotation for a different fertilizer mix than sought by the VA.  Rather than continue to seek a SDVOSB supplier, the VA issued the purchase order to Golf Enviro Systems, Inc., a non-SDVOSB small business.

Phoenix Environmental filed a GAO bid protest, contending that the VA improperly failed to set aside the procurement for SDVOSBs.  In response, the VA argued that it had satisfied the competition requirements for simplified acquisitions by soliciting quotations from three SDVOSB suppliers prior to issuing the purchase order to a small business.

The GAO held that the agency’s explanation “reflects a fundamental misunderstanding of the agency’s obligations” under the Veterans Benefits, Health Care, and Information Technology Act of 2006.  Under the VA Act, the GAO explained, “absent a reasonable determination that the agency could not expect to receive quotations from two or more SDVOSB concerns at a fair and reasonable price, the VA was required to continue to conduct this procurement as a set-aside for SDVOSB concerns,” notwithstanding the fact that it was a simplified acquisition.

Not only had the VA not demonstrated that it had no reasonable basis to expect offers from two or more SDVOSBs, but the VA’s own initial research had uncovered 13 SDVOSBs, aside from the three the VA had contacted, potentially capable of providing the fertilizer.  The GAO sustained Phoenix Environmental’s bid protest, stating that “the agency violated the VA Act and its own implementing regulations when it issued this order to Golf Enviro.”

As my friend Guy Timberlake of the American Small Business Coalition has been regularly discussing on his blog, simplified acquisitions are (or should be) an important part of the procurement puzzle for many small government contractors.  For SDVOSBs seeking these simplified acquisition awards, the Phoenix Environmental case is an important win, signifying that the VA cannot avoid its “Veterans First” obligations merely by procuring supplies or services using simplified procedures.

Of course, SDVOSBs have been down this road before, and have every right to worry that, as in Aldevra, the VA will simply ignore the GAO’s mandate that simplified acquisitions be set-aside for SDVOSBs when the “rule of two” is satisfied.  But to me, the Phoenix Environmental case sounds like a genuine misunderstanding on the part of the procuring official, not an agency-wide effort to (again) curtail the reach of “Veterans First.”  Assuming that to be the case, it is likely that the VA will follow this GAO recommendation.

I’ll keep my fingers crossed.