The U.S. Court of Federal Claims has jurisdiction to hear challenges to the SBA’s SDVOSB determinations.

In a recent case, the Court held that it had the power to review a decision issued by the SBA Office of Hearings and Appeals, in which OHA deemed a company ineligible to receive a SDVOSB set-side contract.

The Court’s decision in Precise Systems, Inc. v. United States, No. 14-1174C (2015) involved a State Department SDVOSB set-aside solicitation for program support services.  After evaluating competitive proposals, State named Precise Systems, Inc. as the apparent successful offeror.  Four competitors filed then protests contending that Precise was not an eligible SDVOSB.

The SBA’s Office of Government Contracting noted that Precise issued two “series” of stock: one held entirely by the service-disabled veteran, and the other by participants in the company’s Employee Stock Ownership Plan.  The SBA D/GC held that this arrangement did not comply with the SBA SDVOSB regulations, which require that service-disabled veterans own at least 51% of each “class” of stock.  Precise appealed to OHA, which upheld that decision of the SBA D/GC.  (If this all sounds familiar, that’s because I summarized OHA’s decision in a January post on SmallGovCon).

Precise filed a pre-award bid protest in the Court, challenging the SBA’s decision.  Before addressing the merits of Precise’s protest, the Court considered whether it had jurisdiction to do so.  Interestingly, Precise’s challenge was apparently the first of its sort.  The Court wrote that “[n]o reported opinions confirm this court’s authority to review an SBA decision where, as here, the SBA has deemed an apparent awardee ineligible for SDVOSB SBC status in the context of an ongoing procurement.”

With no previous decisions to rely upon, the Court was required to decide, for the first time, whether it had the authority to hear challenges to the SBA’s SDVOSB eligibility determinations.  The Court wrote that its jurisdiction broadly applies to “any alleged violation of a statute or regulation in connection with a procurement.”  In this case, “Precise’s only obstacle to the contract award is the SBA decision rendered in the course of this procurement.”

Further, the Court noted that it has “repeatedly exercised jurisdiction over other SBA decisions made in the context of a procurement.”  The Court cited examples of cases in which it reviewed SBA NAICS code designations, HUBZone eligibility determinations, and size standard determinations.  The Court also pointed out that it has exercised jurisdiction over cases involving the VA’s separate SDVOSB program.  The Court held that “this court’s jurisdiction . . . encompasses authority to review an SBA decision deeming an apparent awardee ineligible for SDVO SBC status in the context of an ongoing procurement.”

Turning to the merits of Precise’s protest, the Court held that the SBA had not adequately explained why the Series A and Series B stocks were sufficiently dissimilar to conclude that these were separate “classes” of stocks.  The Court continued:

It appears the OHA based its sufficiency conclusion on the mere fact that variances existed and reflected rights enjoyed or obligations suffered by Series B shareholders that were not shared equally by the SDV in his capacity as the Series A shareholder.  The mere existence of differences, though, says nothing of the relevance or materiality of any of the differences.

The Court concluded that it “cannot find, based on the record before it, that Precise either was or was not an eligible SDVO SBC at the time of it is offer.”  The Court set aside OHA’s decision and remanded the matter to the SBA for additional consideration of Precise’s status.

The ultimate outcome in the Precise Systems case will be of great interest to any SDVOSB thinking of providing an ESOP for its employees.  While the Court’s remand decision does not provide much substantive guidance regarding SDVOSB ESOPs, the decision is notable for its holding that SBA SDVOSB eligibility determinations may be challenged at the Court.  Now that it is clear that OHA is not the end of the line, it will not be surprising if other SDVOSBs begin challenging SBA ineligibility decisions in federal court.