In VA Tiered Evaluation, Small Business Couldn’t Protest SDVOSB Discussions

After the Supreme Court’s unanimous Kingdomware decision affirmed the VA’s statutory obligation to prioritize SDVOSBs in its contracting, the VA authorized the use of so-called “tiered evaluations.” In a typical VA tiered evaluation, various categories of offerors can submit proposals, but SDVOSB proposals are considered first, then VOSB proposals, and so on.

Recently, a non-SDVOSB small business protested the VA’s decision to open discussions with the only SDVOSB offeror to submit a proposal–discussions that allowed the SDVOSB to win the contract. But according to the GAO, the small business couldn’t file a valid protest because the small business wasn’t in the same tier.

The GAO’s decision in Bluewater Management Group, LLC, B-418831 (Sept. 2, 2020) involved a VA solicitation seeking offsite lodging for students at the VA law enforcement training center in Little Rock, Arkansas. The solicitation was issued as a tiered set-aside. SDVOSB proposals would be evaluated first, and VOSB proposals second. The third tier included all other small businesses, although 8(a) and HUBZone companies were to receive “priority” within Tier 3.

The solicitation explained that each tier would be evaluated in order, and in “isolation.” According to the solicitation, there was no guarantee that the VA would evaluate proposals outside Tier 1:

Tier 1 proposals will be evaluated first. After review of Tier 1 proposals, if award can be made at a fair and reasonable price that offers best valued to the United States, no additional tiers will be reviewed. If no offers are submitted at Tier 1 or if none of the Tier 1 proposals would result in award at a fair and reasonable price that offers best value to the United States, the Government will evaluate Tier 2 proposals for award.

The solicitation included a similar statement regarding Tier 2 proposals. The solicitation also included FAR 52.212-1 (Instructions to Offerors–Commercial Items). FAR 52.212-1 states, in part, that that Government expects to award the contract without discussions, but “reserves the right to conduct discussions if later determined by the Contracting Officer to be necessary.”

The VA received proposals from several offerors, but only one SDVOSB, Brian Hall Properties. The VA also received two VOSB proposals. Bluewater Management Group, LLC, which was a small business but was not an SDVOSB or VOSB, also submitted a proposal.

As required by the solicitation, the VA first reviewed Brian Hall’s proposal, and found it technically unacceptable. Although the VA likely could have simply progressed to Tier 2, the VA elected to open discussions with Brian Hall–and only Brian Hall. After discussions, Brian Hall submitted a revised proposal, and this time the proposal passed muster. The VA announced award to Brian Hall.

Bluewater filed a bid protest with the GAO. Bluewater argued that the agency improperly deviated from the solicitation’s tiered evaluation criteria and that entering into discussions only with Brian Hall amounted to an improper sole source award.

The VA filed a motion to dismiss the protest. The VA contended that Bluewater, a non-SDVOSB small business, was not an interested party to challenge the VA’s conduct with respect to Tier 1 evaluations.

The GAO wrote that under the Competition in Contracting Act, only an “interested party” may protest a federal procurement. To be an interested party, “a protester must be an actual or prospective bidder or offeror whose direct economic interest would be affected by the award of a contract or the failure to award a contract.” A protester “is not an interested party where it would not be in line for contract award, were its protest to be sustained.”

In this case, the GAO held, Bluewater was not an interested party:

Here, Bluewater, a small business concern, eligible to compete only in tier 3, is not in line for award because there are other, intervening tiers–SDVOSBs and VOSBs–whose proposals would have to be evaluated and found ineligible for award before the agency could proceed to evaluate tier 3 proposals.  Under this RFP’s evaluation scheme, only if the agency concluded that none of the tier 1 or tier 2 proposals would result in award at a fair and reasonable price could the VA proceed to evaluate tier 3 proposals, including Bluewater’s.  Accordingly, the protester lacks the direct economic interest required to maintain a protest challenging the agency’s actions with regard to the tier 1 offerors.

The GAO dismissed Bluewater’s protest.

For SDVOSBs (and the VA), Bluewater is a welcome decision. At least on the facts in this case, the VA could open discussions with SDVOSBs without worrying about protests from small business offerors. (It’s not clear from the decision whether GAO would have dismissed a protest filed by a Tier 2 VOSB). SDVOSBs may even wish to use Bluewater to encourage Contracting Officers to consider opening Tier 1 discussions, even when there is only one SDVOSB offeror, as was the case here.

But SDVOSBs shouldn’t read too much into Bluewater. The decision shows that the VA may be able to validly open discussions with the sole SDVOSB offeror, but does not say that the VA must do so. As we’ve written before, agencies generally enjoy broad discretion to open–or not to open–discussions. If the VA had elected to simply move to Tier 2 after evaluating Brian Hall’s initial proposal, it almost certainly would have been within its rights to do so. Fortunately for Brian Hall, though, the VA had other ideas.

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