The VA Rule of Two, while a powerful motivator for setting procurements aside for service-disabled veteran-owned small businesses, does have its limits.
One of those exceptions was discussed in a recent ruling from the United States Court of Appeals for the Federal Circuit. The court confirmed that the VA may convert a service-disabled veteran-owned small business set-aside solicitation to a small business set-aside if the SDVOSB bids it receives are too high in price.
The VA Rule of Two, described in 38 U.S.C. 8127(d), requires the VA to set aside an acquisition for SDVOSBs when two or more verified and capable SDVOSBs are identified, provided the contracting officer has a reasonable expectation that two or more of those SDVSOBs will submit offers and that the award can be made at a fair and reasonable price that provides best value to the United States.
We’ve discussed the Rule of Two a lot over the years. In the Kingdomware Techs., Inc. v. United States case, the U.S. Supreme Court confirmed that this rule is mandatory, not discretionary, as we’ve discussed. The VA Rule of Two even trumps the Javits-Wagner-O-Day Act (AbilityOne) in most cases.
And just last month we wrote about the limitations of the Rule of Two recognized in the Land Shark Shredding case, including the Contracting Officer’s ability to determine whether an award can be made at “fair and reasonable prices” and whether GSA’s FSS acceptance of prices affects this determination.
Unlike the tiered evaluation from the Land Shark Shredding case, here, the VA was simply determining whether the re-issued solicitation would be an SDVOSB set-aside at all.
The Veteran Shredding decision looked at protests of two solicitations for essentially the same work. The VA issued an original solicitation for shredding services at the Minneapolis Veterans Affairs Healthcare System (named the “181” solicitation) as an SDVOSB set-aside under the Rule of Two. But the VA cancelled this solicitation after determining no reasonable SDVOSB bids came in, and issued a new solicitation that was nearly identical, named the “276” solicitation. 276 was set aside for competition among all small businesses, veteran-owned or not, as allowed by regulations found here and here.
We blogged previously about Veteran Shredding’s protest of the original solicitation, and its denial based upon lack of standing. So, on appeal, Veteran Shredding was only able to challenge the dismissal of its bid protest on the solicitation’s re-issuance; the Federal Circuit Court noted Veteran Shredding was precluded from challenging the prior solicitation.
The Court of Federal Claims’ dismissal of Veteran Shredding’s protest had been based upon its finding that cancellation of the 181 solicitation was proper and did not violate the Rule of Two because all the bids vastly exceeded the cost estimate and funding for the contract, and the cost estimate and reasonableness analysis were not irrational or contrary to law. That same reasoning provided the basis for approval of the VA’s re-issuance of the solicitation as a set-aside for small businesses instead of solely for SDVOSB’s.
The Court of Appeals affirmed the decision of the Federal Claims court, recognizing VA had a compelling reason to cancel the initial solicitation initially set aside under the Rule of Two, as all the bids from SDVOSBs vastly exceeded the cost estimate and funding for the contract, which themselves were in effect reasonable.
Likewise, the appellate court found the VA’s decision not to re-issue the solicitation as an SDVOSB set-aside was reasonable, as the VA’s market research and sources-sought notices revealed only high bid prices and a lack of offers from capable SDVOSBs.
The Federal Circuit Court then reiterated the limitations of the VA Rule of Two, which “simply requires that competition be restricted if certain conditions are met.” The Federal Circuit Court concluded by finding that the twin conditions of the Rule of Two were not met here, a reminder that although the VA Rule of Two is a very beneficial tool for SDVOSB’s, it does have its limitations, chief among them reasonable pricing.
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