The VA’s decision not to issue a SDVOSB set-aside was improper because the VA adopted an unreasonably narrow approach to determining whether two or more SDVOSBs were likely to submit proposals.

In a recent bid protest decision, the GAO held that the VA’s narrow market research did not support its set-aside determination.  And in so holding, the GAO reaffirmed its position that the VA must put “veterans first” in federal procurements.

The GAO’s decision in Fire Risk Management, Inc., B-411552 (Aug. 20, 2015) involved a VA procurement for architect/engineer services.  The services were to be provided to Veterans Integrated Service Network (VISN) 20 region medical centers located in Washington, Oregon, Idaho, and Alaska.

Before issuing the solicitation, the VA conducted market research to determine the availability of contractors that could satisfy the agency’s requirements.  The VA searched the VA Vendor Information Pages database and the SBA Dynamic Small Business Search database.

The VA’s DSBS search turned up two SDVOSBs operating in the appropriate NAICS code in Washington, Oregon, and Idaho, but neither of those firms was an architect/engineering firm.  The VIP search identified one SDVOSB architect/engineering firm operating in the appropriate NAICS code in the same states.  Based on its market research, the VA issued the solicitation as a small business set-aside instead of a SDVOSB or VOSB set-aside.

Fire Risk Management, Inc. filed a GAO bid protest.  FRM argued that it was unreasonable for the VA to limit its market research to the VISN 20 geographical area because most of the solicitation’s requirements were to be performed at the contractor’s own facility, not at the VA’s facilities in VISN 20.

The GAO confirmed its position that “[u]nder the Veterans Benefits, Health Care, and Information Technology Act of 2006 . . . the VA is required to set aside acquisitions for SDVOSBs whenever it determines that there is a reasonable expectation that offers will be received from at least two SDVOSB firms and that award can be made at a fair and reasonable price.”  The determination of whether two or more SDVOSBs are reasonably expected to submit offers must be based on reasonable market research.

The GAO noted that “in appropriate circumstances an agency may focus its market research on the geographical area in which performance will take place after reasonably concluding that there is little likelihood that firms outside the area would respond to the solicitation.”  However, such cases involve “requirements that likely would be performed by local firms, such as those requirements necessitating a substantial, regular presence by the contractor at specific sites or a specific work area.”

In this case, the majority of the work required by the solicitation was “design services,” including “studies, schematics/design development, contract drawings, specifications,” and so on.  Although site visits were necessary, “it is not evident from the solicitation how often the required services will require substantial performance ‘on site’ in addition to design services that can be performed at the A/E firm’s office(s).” And, “given that the VISN 20 region includes facilities in Washington, Oregon, Idaho, and Alaska, it seems likely that even A/E firms located within VISN 20 will be required to travel significant distances away from their office(s) for necessary site visits.”

The GAO concluded that “the record here does not support the agency’s determination to limit its market research to firms within the VISN 20 region.”  The GAO sustained the protest, holding that it was unreasonable for the VA to refuse to issue a SDVOSB set-aside based on improperly narrow market research.

When the VA applies the SDVOSB “rule of two,” the VA’s set-aside decisions must be based on reasonable market research.  As the Fire Risk Management decision demonstrates, the VA cannot avoid a SDVOSB set-aside based on unreasonably narrow market research.

The Fire Risk Management decision is also notable because the VA does not seem to have disputed that the 2006 VA Act requires the VA to issue a SDVOSB set-aside whenever the “rule of two” is satisfied.  The VA’s implied agreement with this interpretation of the VA Act is at odds with the VA’s own litigating position in the Kingdomware Supreme Court case, in which the VA has asserted that the “rule of two” does not apply whenever the VA has met its SDVOSB contracting goals.  Perhaps decisions like Fire Risk Management will help show the Supreme Court that the VA’s litigating position in Kingdomware is just that–a convenient litigating position, not a consistent expression of the VA’s actual interpretation of the statute.