Def. Integrated Sols. v. United States

• Decision Date: 05 April 2023
• Docket Number: 23-64C
• Parties: DEFENSE INTEGRATED SOLUTIONS, LLC, Plaintiff, v. THE UNITED STATES, Defendant, and STRATEGIC ALLIANCE SOLUTIONS LLC, Defendant-Intervenor.
• Court: U.S. Claims Court

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DEFENSE INTEGRATED SOLUTIONS, LLC, Plaintiff, v. THE UNITED STATES, Defendant, and STRATEGIC ALLIANCE SOLUTIONS LLC, Defendant-Intervenor.

No. 23-64C

United States Court of Federal Claims

April 5, 2023

Matthew T. Schoonover, Schoonover & Moriarty LLC, Olathe KS, for Plaintiff. With him on the briefs were John M. Mattox II and Timothy J. Laughlin. Of counsel were Emily J. Chancey Joshua B. Duvall, and Nicholas P. Greer, Maynard Cooper &amp Gale, P.C., Hunstville, AL.

Bryan M. Byrd, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for Defendant. With him on the briefs were Brian M. Boynton, Principal Deputy Assistant Attorney General, Patricia M. McCarthy, Director, and William J. Grimaldi, Assistant Director.

Meghan F. Leemon, PilieroMazza, PLLC, Washington, D.C., for Defendant-Intervenor. Of counsel were Jonathan T. Williams, Katherine B. Burrows, Peter B. Ford, and Eric A. Valle.

OPINION AND ORDER

MATTHEW H. SOLOMSON JUDGE

This case involves the litigation version of Freaky Friday - all of the parties have essentially switched positions, in one way or another, from the last time they were before this Court. The Small Business Administration ("SBA") Office of Hearing and Appeals ("OHA") previously concluded that Strategic Alliance Solutions LLC ("SAS") - a joint venture competing for a service-disabled veteran-owned small business ("SDVOSB") set-aside procurement - was ineligible for contract award because SAS's joint venture agreement did not comply with a relatively new SBA regulation, 13 C.F.R. § 125.18(b)(2)(ii)(A). SAS challenged that SBA OHA decision before this Court, and the parties - including both the government and the then-Defendant-Intervenor, Defense Integrated Solutions, LLC ("DIS") - agreed to the terms of a remand order for SBA OHA to reconsider its decision. SBA OHA reversed itself. Unhappy with that result, DIS is now the Plaintiff challenging SBA OHA's new decision on the grounds that the agency got it right the first time, while SAS has intervened to defend, rather than challenge, OHA's new decision.

Having considered the parties' arguments, this Court concludes that: (1) the plain language of 13 C.F.R. § 125.18(b)(2)(ii)(A) supports SBA OHA's revised interpretation; or, in the alternative, (2) given the parties' agreement that the regulation is ambiguous, SBA OHA's interpretation of § 125.18(b)(2)(ii)(A) is entitled to deference. Either way, the government and SAS are entitled to judgment on the administrative record.

I. REGULATORY BACKGROUND

As early as 1974, Congress instructed the SBA to give "special consideration to veterans of the Armed Forces of the United States and their survivors or dependents." Act of Jan. 2, 1974, Pub. L. No. 93-237, § 8, 87 Stat. 1023, 1025 (amending 15 U.S.C. § 633); see also R. Corrine Blackford, Cong. Rsch. Serv., R47226, Federal Contracting by Veteran-Owned Small Businesses: An Overview and Analysis of Contemporary Issues 7 (2022) (describing SBA legislative and regulatory history). Since then, the SBA "has led federal efforts to support" veteran-owned small businesses ("VOSBs") and "veterans who want to become business owners." Blackford, supra at 16; see also id. at 8-10 (describing SBA's SDVOSB program); id. at 13-15 (describing SBA programs to support VOSBs).

From around the turn of the millennium onward, Congress repeatedly has exercised its legislative prerogative over federal procurements to further assist VOSBs. For example, the Veterans Entrepreneurship and Small Business Development Act of 1999 aimed to "expand existing and establish new assistance programs for veterans who own and operate small businesses." Pub. L. No. 106-50, § 102, 113 Stat. 233, 234 (1999). This included setting a government-wide goal that SDVOSBs participate in at least three percent "of the total value of all prime contract and subcontract awards for each fiscal year." Id. § 502(a)(2), 113 Stat. at 247 (codified as amended at 15 U.S.C. § 644(g)(1)(A)(ii)); see also Federal Acquisition Regulation: Veterans Entrepreneurship and Small Business Development Act of 1999, 67 Fed.Reg. 56,122, 56,123 (Aug. 30, 2002) (finalizing FAR revisions published earlier, 65 Fed.Reg. 60,542 (Oct. 11, 2000), to implement parts of the Act related to SDVOSBs).

In 2003, Congress created the SDVOSB Procurement Program to assist small business concerns ("SBCs") owned and controlled by service-disabled veterans. See Veterans Benefit Act of 2003, Pub. L. No. 108-183, § 308, 117 Stat. 2651, 2662 (2003) (codified as amended at 15 U.S.C. § 657f); see also Federal Acquisition Regulation: Procurement Program for Service-Disabled Veteran-Owned Small Business Concerns, 70 Fed.Reg. 14,950 (Mar. 23, 2005) (finalizing proposed FAR revisions, 69 Fed.Reg. 25,273 (May 5, 2004), to create FAR subpart 19.14); FAR 19.1401(a). And, pursuant to the Veterans Benefits, Health Care, and Information Technology Act of 2006, Pub. L. No. 109-461, 120 Stat. 3431-36 (codified as amended at 38 U.S.C. §§ 8127-28), Congress required the Secretary of the Department of Veterans Affairs ("VA") to set annual goals for contracting with SDVOSBs and other VOSBs. See 38 U.S.C. § 8127(a); VA Acquisition Regulation: Supporting Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses, 74 Fed.Reg. 64,619, 64,631 (Dec. 8, 2009).

The federal government generally continues to aim to award at least 3% of all federal contracting dollars to SDVOSBs each year.^[1] Although no government-wide procurement goal for VOSBs exists, the VA maintains a program limited to its agency known as the Veterans First program. See VA Acquisition Regulation ("VAAR") 819.7001(a)-(b) (codified at 48 C.F.R. ch. 8);^[2] Blackford, supra at 12 ("The VA's FY2023 VOSB goal is 17%. In recent years, the VA has awarded a higher percentage to VOSBs than the goal."). The Veterans First program requires VA contracting officers ("COs") to set aside contracts for SDVOSBs and VOSBs where the Rule of Two is met - that is, where the cognizant CO reasonably expects that at least two such businesses will submit offers and that "the award can be made at a fair and reasonable price that offers best value to the United States." 38 U.S.C. § 8127(d)(1); see also FAR 19.1405(b) (setting out these two conditions); 13 C.F.R. § 128.404 (Veteran Small Business Certification Program set-asides for VOSBs and SDVOSBs); VAAR 819.7006(a) (Veterans First set-asides); VA Acquisition Regulation: Plain Language Rewrite, 73 Fed.Reg. 2711, 2750 (Jan. 15, 2008) (finalizing 819.7001); 74 Fed.Reg. at 64,633-34 (Dec. 8, 2009) (finalizing additional VAAR sections); Kingdomware Techs., Inc. v. United States, 579 U.S. 162, 164-65 (2016) (defining the Rule of Two and holding that, pursuant to 38 U.S.C. § 8127(d), "the [VA] must use the Rule of Two when awarding contracts"); AmBuild Co., LLC v. United States, 119 Fed.Cl. 10, 19 (2014) (explaining that "the Veterans First Contracting Program . . . was established in 2007, under which VA considers SDVOSB and VOSB entities as first and second priority for procurement awards").^[3]

The COs of other federal executive branch agencies may also set aside procurements for SDVOSBs where the Rule of Two is met. See 15 U.S.C. § 657f(d) ("Restricted competition") ("In accordance with this section, a contracting officer may award contracts on the basis of competition restricted to small business concerns owned and controlled by service-disabled veterans . . . if the contracting officer has a reasonable expectation that not less than 2 small business concerns owned and controlled by service-disabled veterans will submit offers and that the award can be made at a fair market price."); FAR 19.203(c) (governing "acquisitions of supplies or services that have an anticipated dollar value exceeding the simplified acquisition threshold"); see also Small Business Programs, Def. Logistics Agency, https://www.dla.mil/Small-Business/Getting -Started/Programs/ (last visited Mar. 22, 2023) (providing guidance about DLA VOSB and SDVOSB set-asides). COs may award contracts to SDVOSBs via either set-aside procedures, FAR 19.1405(a)(2), or sole-source awards, FAR 19.1406(a). See FAR 19.1405(a)(3) (requiring COs to "consider SDVOSB set-asides before considering SDVOSB sole source awards" (citations omitted)); FAR 19.1406(a) (requiring COs to consider SDVOSB sole source awards before considering a set-aside for small businesses in general).^[4]

An offeror for an SDVOSB procurement must qualify as "(1) [an] [SDVOSB] concern; and (2) [a] [s]mall business concern under the North American Industry Classification System (NAICS) code assigned to the procurement." FAR 19.1403(b); see also FAR 19.1403(a) (providing that "[s]tatus as a[n] [SDVOSB] concern is determined in accordance with [13 C.F.R. § 128.200]"). According to 13 C.F.R. § 128.200, "[a] concern must be certified as a VOSB or SDVOSB pursuant to [13 C.F.R.] § 128.300 in order to be awarded a VOSB or SDVOSB set-aside or sole source contract." 13 C.F.R. § 200(c)(1); see 13 C.F.R. § 128.300 (requiring a business concern to "submit evidence" for SBA certification); 13 C.F.R. § 128.303 ("What must a concern submit to apply for VOSB or SDVOSB certification?"); 13 C.F.R. § 128.306 ("How does a concern maintain its VOSB or SDVOSB certification?"). To receive SBA certification, "a concern must . . . demonstrat[e] that it is owned and controlled by one or more qualifying veterans and qualifies as a small business concern." 13 C.F.R. § 128.303(a).

Ordinarily if a concern or entity cannot qualify as a small business, then its affiliates also cannot qualify as small businesses. See 13 C.F.R. § 121.103(a)(1) ("Concerns and entities are affiliates of each other when one controls or has the power...