United States: Federal Circuit Affirms Veteran-Owned Small Businesses Are The VA's First Priority

The U.S. Court of Appeals for the Federal Circuit recently affirmed a May 2017 Court of Federal Claims decision requiring the U.S. Department of Veterans Affairs ("VA") to give veteran-owned small businesses first priority before purchasing from the AbilityOne Program.

In August 2016, PDS Consultants, Inc. ("PDS"), a service-disabled veteran-owned small business that provides eyeglasses and vision-related services to the VA, filed a bid protest challenging the VA's decision to purchase eyeglasses off of the AbilityOne Procurement List without first conducting a "Rule of Two" analysis under the 2006 Veterans Benefits, Health Care, and Information Technology Act (the "VBA"), 38 U.S.C. §§ 8127-8128 (as implemented through the Veterans First Contracting Program). The VBA Rule of Two (at 38 U.S.C. § 8127(d)) requires the VA to conduct a market analysis of whether there are at least two veteran-owned small businesses that could submit offers for a given acquisition at a fair price. If met, the VA must set-aside the procurement for service-disabled veteran-owned or veteran-owned small businesses. In June 2016, the U.S. Supreme Court declared the VBA Rule of Two was "mandatory" for VA procurements, subject to limited statutory exceptions, in Kingdomware Technologies Inc. v. United States. PDS's bid protest claimed that the VA's continued purchasing from an AbilityOne entity violated the plain meaning of the VBA, as elucidated by the Supreme Court. The United States and intervenor Winston-Salem Industries for the Blind, Inc. ("IFB") (since renamed IFB Solutions), the incumbent contractor on the eyeglasses contracts at issue, countered that the Javits-Wagner O'Day Act ("JWOD"), 41 U.S.C. §§ 8501-8506, provided the AbilityOne Program (which provides employment opportunities for the blind and severely disabled) with priority over veteran-owned small businesses under the VBA such that the Rule of Two did not have to be applied to these procurements.

In May 2017, applying the plain language of the VBA and following the Supreme Court's decision in Kingdomware, the Court of Federal Claims declared that the VBA Rule of Two must be applied to the eyeglass contracts at issue before looking to AbilityOne sources. The United States and IFB appealed.

The Federal Circuit affirmed, finding that the plain language of the more specific, later-enacted VBA, as well as the statute's legislative history and Congress's intent, requires the VA to apply the VBA before considering AbilityOne sources. The court noted the VBA was "expressly enacted to 'increase contracting opportunities for small business concerns owned and controlled by veterans and ... by veterans with service-connected disabilities.'" Further, the statute requires the VA to give priority to veteran-owned small businesses when procuring under the VBA "or any other provision of law." Applying the rules of statutory interpretation that a more specific, later-enacted statute governs, the three-judge panel unanimously held that because the VBA only applies to the VA it is more specific than JWOD, which applies government-wide. Further, the VBA was enacted in 2006, while JWOD was last substantively amended in 1971. Moreover, unlike an earlier VA-preference statute that merely encouraged veteran-owned small business set-asides, the 2006 VBA had no exception for the AbilityOne Program. Consistent with Kingdomware, which found the VBA was "mandatory, not discretionary" and applied to "all contracting determinations," the Federal Circuit held that the VBA applies to "all contracts – not only competitive contracts." The court concluded the "VBA unambiguously demands that priority be given to small businesses" fulfilling Congress's intent to increase opportunities for veteran-owned small businesses at the VA. As a result, the VA will be able to fulfill its special mission to continue to put veterans first.

*David Gallacher & Emily Theriault represented the Plaintiff, PDS Consultants, Inc. in this litigation.

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