Veterans Contracting Group, Inc. v. United States

In the United States Court of Federal Claims

No. 17-1015C

(Filed Under Seal: December 15, 2017)

(Reissued: December 21, 2017)

**********************************

VETERANS CONTRACTING ) Pre-award bid protest; restoration of

GROUP, INC., ) SDVOSB to the VA’s VetBiz VIP

) database; cancellation of one

Plaintiff, ) solicitation; prospective, not retroactive,

) restoration of SDVOSB to the VetBiz

v. ) VIP database, award of bid preparation

) and proposal costs

UNITED STATES, )

)

Defendant. )

)

***********************************

Joseph A. Whitcomb, Whitcomb, Selinsky, McAuliffe, PC, Denver, Colorado, for

plaintiff.

Kara M. Westercamp, Trial Attorney, Commercial Litigation Branch, Civil Division,

United States Department of Justice, Washington, D.C., for defendant. With her on the briefs

were Chad A. Readler, Acting Assistant Attorney General, Civil Division, Robert E. Kirschman,

Jr., Director, and Allison Kidd-Miller, Assistant Director, Commercial Litigation Branch, Civil

Division, United States Department of Justice, Washington D.C. Of counsel were Steven Devine

and Mark G. Machiedo, Office of General Counsel, United States Department of Veterans

Affairs, and Karen Hunter, Office of General Counsel, United States Small Business

Administration.

OPINION AND ORDER 1

LETTOW, Judge.

This pre-award bid protest returns to this court after the issuance of a preliminary

injunction, 2 action by the agency to substantially recast the two solicitations at issue, and the

1

Because of the protective order entered in this case, this opinion was initially filed under

seal. The parties were requested to review this decision and provide proposed redactions of any

confidential or proprietary information. The resulting redactions are shown by brackets

enclosing asterisks, e.g., “[***].”

filing of a first and then a second amended complaint by the protester. Plaintiff, Veterans

Contracting Group (“Veterans”), was initially verified by the United States Department of

Veterans Affairs (“VA”) as a service-disabled veteran-owned small business (“SDVOSB”).

While Veterans was preparing to submit bids on two VA solicitations set aside for SDVOSBs,

the Small Business Administration (“SBA”) issued a decision in a protest before it, disqualifying

Veterans as an SDVOSB. Shortly thereafter, VA informed Veterans that, due to that adverse

decision, it was being removed from the VA database for SDVOSBs eligible to compete for VA

procurement set-asides. 3 Veterans then filed this bid protest and sought a preliminary injunction

with respect to the two SDVOSB procurements it had been preparing to pursue. Veterans

alleged that it was a qualified SDVOSB eligible for an award in those procurements and should

not have been removed from the VA database.

This court granted Veterans’ motion for preliminary injunction in part, ordering VA to

restore Veterans to the procurement database and rendering it eligible to compete for SDVOSB

set-asides. This Veterans was able to do with regard to one of the solicitations, but VA canceled

the other. As the circumstances evolved, Veterans sought and was granted leave to amend its

complaint on two occasions to protest that cancellation, and the administrative record was

supplemented to account for the new developments.

Veterans then moved for judgment on the administrative record, seeking both declaratory

and injunctive relief. First, Veterans requests a declaration that Veterans’ removal from the VA

database was arbitrary, capricious, a violation of VA’s regulations, and an abridgment of

Veterans’ due process rights, rendering permanent the relief ordered by the court’s preliminary

injunction. Second, Veterans seeks an injunction barring VA from cancelling the second

solicitation and ordering it to consider Veterans retroactively eligible for an award of a contract

based upon that solicitation. The government has responded with a cross-motion for judgment

on the administrative record.

STATUTORY AND REGULATORY FRAMEWORK

“In an effort to encourage small businesses, Congress has mandated that federal agencies

restrict competition for some federal contracts.” Kingdomware Techs., Inc. v. United States, __

U.S. __, __, 136 S. Ct. 1969, 1973 (2016). The task of promulgating regulations “set[ting] forth

procedures . . . to set aside contracts for” SDVOSBs has been assigned to two distinct agencies,

2

See Veterans Contracting Grp. Inc. v. United States, 133 Fed. Cl. 613 (2017) (granting a

preliminary injunction setting aside the agency’s decision to remove the protester from the

VetBiz VIP database of approved SDVOSB entities and restoring the protester to the list).

3

SBA’s decision was rendered by its Office of Hearings and Appeals (“OHA”), and came

in a procurement by the Corps of Engineers. Veterans was the low bidder in that procurement

and had been awarded the contract by the Corps, but a competing offeror protested the award and

triggered the proceedings that ultimately resulted in OHA’s decision to disqualify Veterans from

the award by the Corps. Veterans protested that disqualification in a separate, related post-award

bid protest, but the court denied relief and upheld the disqualification based on SBA’s

regulations that diverge materially from those adopted by VA. See Veterans Contracting Grp.

Inc. v. United States, ___ Fed. Cl. ___, 2017 WL 6505208, No. 17-1188C (Dec. 11, 2017).

2

VA and SBA. See Kingdomware Techs., 136 S. Ct. at 1973 (internal quotation marks omitted);

see also 15 U.S.C. § 657f (SBA); 38 U.S.C. § 8127(a), (e) (VA). VA and SBA have established

separate but overlapping regulatory frameworks for these set-asides. Compare 38 C.F.R. Part 74

(VA), with 13 C.F.R. Part 125 (SBA).

Congress authorized VA to set aside certain contracts for “small business concerns

owned and controlled by veterans with service-connected disabilities” through the Veterans

Benefits, Health Care, and Information Technology Act of 2006 (“Veterans Benefits Act”), Pub.

L. No. 109-461, tit. V, 120 Stat. 3403, 3425 (codified as amended in relevant part at 38 U.S.C.

§§ 8127-28). See 38 U.S.C. § 8127(a), (e). The Act and, a fortiori, the regulations it authorizes

apply only to VA procurements. See Angelica Textile Servs., Inc. v. United States, 95 Fed. Cl.

208, 222 (2010) (“The [VA] is responsible for implementing the Veterans Benefits Act; indeed,

it is the only federal department or agency to which the Act's requirements apply.”); see also 48

C.F.R. § 819.7002 (explaining that the VA’s implementing regulations apply only to “VA

contracting activities and to its prime contractors” and “to any government entity that has a

contract . . . or other arrangement with VA to acquire goods and services for VA”) (emphasis

added).

VA implemented the Veterans Benefits Act through the “Veterans First Contracting

Program,” established in 2007. See AmBuild Co. v. United States, 119 Fed. Cl. 10, 19 (2014).

“At the Program's commencement, SDVOSB . . . entities were permitted to self-certify . . . for

registration in the VetBiz VIP database.” Id. But the authorizing statute was subsequently

amended to require the Secretary of Veterans Affairs to maintain the database and certify

contracting entities through the VA’s Center for Verification and Evaluation (“CVE”). Id.

(citing 38 U.S.C. § 8127(e), (f)); see also 48 C.F.R. § 804.1102. A business must be included on

the VA’s VetBiz VIP database to qualify as an eligible SDVOSB for a contract award. See 38

U.S.C. § 8127(e), (f); 48 C.F.R. § 804.1102. CVE now certifies participating entities and

maintains such certification by performing examinations that “review . . . a[t] a minimum . . . all

documents supporting the application, as described in [38 C.F.R.] § 74.12.” See 38 C.F.R. §

74.20(b). These “examination[s] may be conducted on a random, unannounced basis, or upon

receipt of specific and credible information alleging that a participant no longer meets eligibility

requirements.” Id. § 74.20(a).

“When CVE believes that a participant's verified status should be cancelled prior to the

expiration of its eligibility term,” CVE notifies the small business and allows 30 days for it to

respond. See 38 C.F.R. § 74.22(a)-(b). Upon a determination that cancellation is warranted, the

director of the CVE will issue a reasoned notice of cancellation, and the business will be

removed from the VetBiz VIP database. See id. § 74.22(c)-(d). The business then has a right to

appeal the determination to the Office of Small and Disadvantaged Business Utilization and

Center for Veterans Enterprise “within 30 days of receipt of [the] cancellation decision” or to

“re-apply after it has met all eligibility criteria.” Id. § 74.22(c), (e).

3

38 C.F.R. § 74.22 does not provide the only process for removing a participant from the

VIP database. VA adopted 38 C.F.R. § 74.2(e) in 2010, 4 and, with this single provision, protest

decisions by SBA, presumably applying SBA’s own regulations, could potentially displace VA’s

cancellation and removal process without accounting for the differences between the two

agencies’ underlying regulatory eligibility criteria. Subsection 74.2(e) states:

Any firm registered in the VetBiz VIP database that is found to be ineligible due

to an SBA protest decision or other negative finding will be immediately removed

from the VetBiz VIP database. Until such time as CVE receives official

notification that the firm has proven that it has successfully overcome the grounds

for the determination or that the SBA decision is overturned on appeal, the firm

will not be eligible to participate in the [Veterans First Contracting P]rogram.

38 C.F.R. § 74.2(e). This provision is not remarkable in isolation but, due to the differences in

the VA and SBA regulations, addressed infra, it can create anomalous results. It was just this

kind of anomalous outcome that was set aside by the preliminary injunction issued in this case.

See Veterans Contracting Grp., 133 Fed. Cl. 613.

To qualify for CVE certification as an SDVOSB, “[a] small business concern must be

unconditionally owned and controlled by one or more eligible . . . service-disabled veterans.” 38

C.F.R. 74.2(a) (emphasis added). When the small business concern is a corporation, “at least 51

percent of each class of voting stock outstanding and 51 percent of the aggregate of all stock

outstanding must be unconditionally owned by one or more . . . service-disabled veterans.” Id. §

74.3(b)(3). VA has defined unconditional ownership in commercially customary terms:

Ownership must not be subject to conditions precedent, conditions subsequent,

executory agreements, voting trusts, restrictions on assignments of voting rights,

or other arrangements causing or potentially causing ownership benefits to go to

another (other than after death or incapacity). The pledge or encumbrance of stock

or other ownership interest as collateral, including seller-financed transactions,

does not affect the unconditional nature of ownership if the terms follow normal

commercial practices and the owner retains control absent violations of the terms.

Id. § 74.3(b) (emphasis added).

This court previously interpreted and applied these regulations in Miles Constr., LLC, v.

United States, 108 Fed. Cl. 792 (2013), and AmBuild, 119 Fed. Cl. 10. In Miles, the VA had

removed Miles Construction from the VetBiz VIP database because there was a restriction on the

service-disabled veteran’s ownership interest, allegedly rendering his ownership conditional.

108 Fed. Cl. at 800-01. The company’s Operating Agreement granted a right of first refusal to

“the company, or the remaining members of the company if the company declines, . . . to

purchase a member's shares, should he or she decide to sell.” Id. at 801. The government

asserted that that provision of the Operating Agreement was an executory agreement that

4

See Veteran-Owned Small Business Guidelines, 75 Fed. Reg. 422, 378 (Feb. 8, 2010)

(codified at 38 C.F.R. § 74.2(e)).

4

violated 38 C.F.R. § 74.3(b) “because it prevent[ed the] owner from acting [unilaterally] upon

his ownership interest.” Id. This court disagreed because the right-of-first-refusal provision was

“not presently executory” as it had not been triggered by the veteran “choos[ing] to sell some of

his . . . stake” and because it was “a standard provision used in normal commercial dealings.” Id.

at 803 (relying on 38 C.F.R. § 74.3(b)).

In AmBuild, the question was, inter alia, whether a provision of an Operating Agreement

that permits the company to purchase the veteran-owner’s ownership interest in cases of

“bankruptcy, receivership, and transfer by court order or operation of law” rendered ownership

conditional in violation of 38 C.F.R. § 74.3(b). 119 Fed. Cl. at 16, 23-24. The government

argued that it did because “personal bankruptcy does not ordinarily result in the divesture of

ownership.” Id. at 24. But this court disagreed, noting that “the property of every business

owner is automatically placed in custody of the court upon bankruptcy,” and determining that the

operating agreement reflected “a standard commercial arrangement in compliance with 38 C.F.R.

§ 74.3(b).” Id. at 25.

Congress has also authorized SBA to designate SDVOSB set-asides, creating the Service-

Disabled Veteran-Owned Small Business Concern (“SDVOSBC”) program. 5 Unlike the VA’s

regulatory approach, “SBA’s program . . . has no required verification program, relying instead

on [annual self-certification via] the System for Award Management.” Veterans Contracting

Grp., Inc., SBA No. VET-265, 2017 WL 4124865 at *9 (Aug. 31, 2017); see also 13 C.F.R. §

125.33. In place of CVE-type oversight, SBA permits other bidders on specific solicitations to

protest the status or the ownership and control of the competing small business concern. See 13

C.F.R. § 125.29 (“What are the grounds for filing an SDVOSBC protest?”). When challenging

on ownership or control grounds, the protestor must “present[] credible evidence that the concern

is not 51% owned and controlled by one or more service-disabled veterans.” Id. § 125.29(b).

Such protests are handled first by an SBA area field office and then are appealable to OHA. See

id. §§ 125.30-25.31; see also generally id. Part 134 (“Rules of Procedure Governing Cases

Before the Office of Hearings and Appeals”).

Eligibility in SBA’s SDVOSBC program requires the small business concerns to be “at

least 51% unconditionally and directly owned by one or more service-disabled veterans.” 13

C.F.R. § 125.12. The SDVOSBC program, in contradistinction to the VA set-aside program,

does not include a definition of unconditional ownership. See 13 C.F.R. § 125.11 (specifying

definitions important to the SDVOSB program, but omitting a definition of “unconditional

ownership”). Instead, SBA uses an interpretation by OHA of what is now 13 C.F.R. § 125.12, as

set forth in The Wexford Group Int’l, Inc., SBA No. SDV-105, 2006 WL 4726737 (June 29,

2006). There OHA determined “the plain and ordinary meaning of the word” “unconditional” by

looking to a dictionary. Wexford, 2006 WL 4726737, at *6 & n.2. From the dictionary

definition, OHA determined that “in the context of 13 C.F.R. § 125.[12],”

5

The SBA’s SDVOSBC program was authorized by the Veterans Entrepreneurship and

Small Business Development Act of 1999, Pub. L. No. 106-50, 113 Stat. 233 (codified as

amended at 15 U.S.C. §§ 657b-57c), and the Veterans Benefits Act of 2003, Pub. L. No. 108-

183, 117 Stat. 2651 (codified as amended at 15 U.S.C. § 657f and 38 U.S.C. §§ 1821, 4113,

5109B, 7112), and implemented via SBA regulations codified at 13 C.F.R. §§ 125.11 to 125.33.

5

unconditional necessarily means there are no conditions or limitations upon an

individual's present or immediate right to exercise full control and ownership of

the concern. Nor can there be any impediment to the exercise of the full range of

ownership rights. Thus, a service-disabled veteran: (1) Must immediately and

fully own the company (or stock) without having to wait for future events; (2)

Must be able to convey or transfer interest in his ownership interest or stock

whenever and to whomever they choose; and (3) Upon departure, resignation,

retirement, or death, still own their stock and do with it as they choose. In sum,

service-disabled veterans must immediately have an absolute right to do anything

they want with their ownership interest or stock, whenever they want.

Id. This absolutist interpretation is a sharp departure from the definitions promulgated via

regulation in SBA’s other small business programs. See 13 C.F.R. §§ 124.3 (defining

“unconditional ownership” for the 8(a) program for small disadvantaged businesses), 127.201

(defining “unconditional ownership” for the Women-Owned Small Business program). The

definitions in those programs build in nuances virtually identical in effect to VA’s definition,

particularly the allowance to “follow normal commercial practices” common to each of them.

See 38 C.F.R. § 74.3; 13 C.F.R. §§ 124.3, 127.201. For SBA, however, service-disabled

veterans must have “an absolute right to do anything they want with their ownership interest or

stock, whenever they want.” See Wexford, 2006 WL 4726737 at *6.

FACTS 6

Veterans is a corporation organized under the laws of the State of New York. Compl. ¶

24. 7 Ronald Montano, a service-disabled veteran, owns 51 percent of the company and Greg

Masone owns the remaining 49 percent. Compl. ¶¶ 22, 24. On July 17, 2013, VA, acting

through the CVE, verified Veterans as a qualified SDVOSB on its VIP database. Veterans

Contracting, 133 Fed. Cl. at 616. The VA carried out subsequent annual site visits between 2014

and 2016, evaluating and reaffirming Veterans’ eligibility to remain in the database as an

SDVOSB. Id. at 617.

On January 5, 2017, Veterans learned that it was the lowest-priced bidder on an

SDVOSB set-aside, solicitation number W912DS-16-B-0017, issued by the United States Army

Corps of Engineers “for the removal of hazardous materials and demolition of buildings at the St.

Albans Community Living Center in Jamaica, New York.” Compl. ¶¶ 7-8, 10. On January 11,

Williams Building Company (“Williams”), second-place bidder on the solicitation, filed a protest

6

The recitations that follow constitute findings of fact by the court drawn from the

administrative record of the procurements filed pursuant to Rule 52.1(a) of the Rules of the Court

of Federal Claims (“RCFC”). See Bannum, Inc. v. United States, 404 F.3d 1346, 1356 (Fed. Cir.

2005) (explaining that bid protest proceedings “provide for trial on a paper record, allowing fact-

finding by the trial court”).

7

Although Veterans filed amended complaints, the basic allegations of fact were set out

in the original complaint, and that complaint will be cited for background in this opinion.

6

with the contracting officer, challenging both Veterans’ size and status as an SDVOSB. See

Compl. ¶ 11; AR 16-126 to 39. 8 The contracting officer referred the protest to SBA, see AR

Tabs 14-15, pursuant to SBA regulations, see 13 C.F.R. §§ 125.2, 125.14(b).

An SBA area office issued a size determination on February 2, 2017, concluding that

Veterans was a small business. AR 12-104. Later that month, the area office also issued its

status determination, concluding that Veterans “met the [SDVOSB] eligibility requirements at

the time of its [bid].” AR 13-112 to 17. Williams appealed the status determination to SBA’s

OHA on February 28, 2017. See AR Tab 11. Before OHA rendered a decision on Williams’

appeal, SBA requested that the SBA area office’s determination be remanded “for further review

and investigation.” AR 9-76 to 78. OHA granted that remand on April 3. AR 8-69 to 73. On

remand, the SBA area office reversed itself, determining that Veterans was ineligible to bid as an

SDVOSB, and therefore sustained Williams’ protest. See AR 2-3 to 12. The SBA area office

explained that, in light of Veteran’s shareholder agreement, Mr. Montano did not unconditionally

own Veterans because that agreement restricted his heirs’ ability to convey or transfer Veterans

stock. See Veterans Contracting, 133 Fed. Cl. at 617.

On July 21, 2017, three days after the SBA area office determination, “VA informed

Veterans that it was being removed from the VA VIP database in accordance with 38 C.F.R. §

74.2(e) based on the SBA area office determination that Veterans did not qualify as a SDVOSB.”

Veterans Contracting, 133 Fed. Cl. at 617 (internal brackets and quotations marks omitted).

Veterans filed this bid protest on July 28, challenging the VA’s decision to remove it from the

VIP database and the underlying determination by SBA. See generally Compl. Veterans alleged

that the government’s actions precluded it from competing for two upcoming “VA SDVOSB set-

aside procurements.” Compl. ¶ 1. The first solicitation, number VA242-17-B-0713, was a

relocation contract regarding the “SPS Castle Point Campus VA Hudson Valley Health Care

System” in Wappingers Falls, New York (“relocation solicitation”). See Compl., Ex. 2. The

second solicitation, number VA242-17-B-0723, was a roof replacement contract at the Northport

VA Medical Center in Northport, New York (“roofing solicitation”). See Compl., Ex. 1.

Veterans moved for a preliminary injunction, specifically requesting “that the court set aside

CVE’s decision to decertify Veterans as a SDVOSB, order the VA to reinstate Veterans into the

VIP database, and enable Veterans to compete for the SDVOSB set-aside roofing and relocation

solicitations.” Veterans Contracting, 133 Fed. Cl. at 618. On August 22, this court granted in

part Veterans’ motion for a preliminary injunction, ordering VA to “restore Veterans to the VIP

database of approved SDVOSB entities.” Id. at 624.

The preliminary injunction explicitly “allowed [Veterans] to compete for the relocation

solicitation,” id., because the government had not proceeded with the solicitation process, instead

“extend[ing] the proposal deadline,” Veterans Contracting, 133 Fed. Cl. at 618, before

8

Citations to the administrative record refer to the record as filed on August 9, 2017, as

corrected on August 16, 2017, and as supplemented on September 20, 2017. The record is

divided into tabs and paginated sequentially. In citing to the record, the court will first designate

the tab, followed by the page number. For example, AR 16-126 refers to tab 16, page 126 of the

administrative record.

7

suspending it pending the resolution of Veterans’ motion for a preliminary injunction, see Hr’g

Tr. 7:12-24 (Nov. 21, 2017). 9 After being restored to the VetBiz VIP database, Veterans

submitted a bid for the relocation solicitation; no award has as yet been made. Hr’g Tr. 28:5-17.

Contrastingly, the court did not explicitly address the effects of the preliminary injunction on the

roofing solicitation because, although Veterans had timely submitted its bid, “the government

[indicated] that the contracting officer ha[d] started the process of cancelling the solicitation and

plan[ned] to reissue it.” See Veterans Contracting, 133 Fed. Cl. at 618 (internal quotation marks

omitted).

VA received four bids for the roofing solicitation but only two were responsive, i.e., they

met “the terms and conditions set forth in the solicitation,” and only responsive bids may be

considered for the contract award. See AR 96-924. Veterans was one of the bids that was

“deemed unresponsive” and was “removed from consideration due to a lack of [V]et[B]iz

certification” as of the application deadline, July 28, 2017. See id. The two responsive bidders’

proposals were [***] and [***] for a project with an independent “[g]overnment estimate

[(“IGE”)] of $3.6 million.” Id. The two unresponsive bidders, Veterans and [***] had offered to

do the work for [***] and [***] respectively. AR 88-901; 86-887. Because the responsive bids

were more than “[***] higher than the IGE,” the contracting officer determined that the bids

were “not fair and reasonable” and sought “to cancel the solicitation.” AR 94-922. The VA

ultimately cancelled the roofing solicitation on August 22, 2017, “due to [the] bids being much

higher than [the] government could deem reasonable.” AR 99-930. VA indicated that it

“plan[ned] to issue a new solicitation for the [roofing solicitation].” Id.

Veterans sought and was granted leave to supplement its pleadings to protest the

cancellation of the roofing solicitation. See Order Granting in Part and Den. in Part Mot. to

Suppl. Pleadings, ECF No. 34; Order Granting Mot. to Suppl. Pleadings, ECF No. 37; Order

Granting Pl.’s Mot. for Leave to File a Second Suppl. Compl., ECF No. 46. It alleges that the

cancellation was pretextual because its unresponsive bid was within the solicitation’s “scope of

construction.” See Am. Suppl. Compl. for Declaratory and Inj. Relief (“Suppl. Compl.”) ¶ 19,

ECF No. 44-1. Veterans requests a declaratory judgment that “the VA acted unreasonably . . .

when it cancelled the solicitation . . . under pretext,” and “when it removed [Veterans] from the

[V]et[B]iz database without first providing [n]otice and an opportunity to respond.” Suppl.

Compl. at 11. Veterans seeks “a permanent injunction ordering the VA to reverse its

determination to cancel [the roofing] solicitation . . . or [refrain from making] any further

changes to the procurement until this court has fully adjudicated [Veterans’] SDVOSB status”

and “to restore [Veterans] to the [V]et[B]iz database[,] retroactively effective no later than July

21, 2017.” Suppl. Compl. at 11. Finally, it also seeks an award of “attorneys’ fees and expenses;

and . . . such other and further relief as is equitable and just.” Suppl. Compl. at 11; see generally

Pl.’s Mot. for Judgment on the Admin. Record (“Pl.’s Mot.”), ECF No. 49. The government

opposed Veterans’ motion, filing a cross-motion for judgment on the administrative record. See

generally Def.’s Cross-Mot. for Judgment on the Admin. Record and Resp. to Pl.’s Mot. for

Judgment on the Admin. Record (“Def.’s Cross-Mot.”), ECF No. 50. All issues have been fully

briefed and argued and are now ready for disposition.

9

The date will be omitted from later citations to the transcript of the hearing on the merits

conducted on November 21, 2017.

8

STANDARDS OF REVIEW

Standards in the Administrative Procedure Act (“APA”), 5 U.S.C. § 706, govern the

court’s review of a challenge to an agency’s decisions regarding contractual solicitations or

awards. See 28 U.S.C. § 1491(b)(4) (“In any action under this subsection, the courts shall review

the agency’s decision pursuant to the standards set forth in section 706 of title 5.”). Under the

APA, courts may set aside agency decisions that are “arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law,” 5 U.S.C. § 706(2)(A), subject to the

traditional balancing test applicable to a grant of equitable relief. See PGBA, LLC v. United

States, 389 F.3d 1219, 1224-28 (Fed. Cir. 2004). Where an agency decision is so set aside, “the

courts may award any relief that the court considers proper, including declaratory and injunctive

relief except that any monetary relief shall be limited to bid preparation and proposal costs.” 28

U.S.C. § 1491(b)(2). The question of whether the court would have applied the procurement

regulations in a different manner than did the agency is irrelevant to this inquiry. See Honeywell,

Inc. v. United States, 870 F.2d 644, 648 (Fed. Cir. 1989). The court may not “substitute its

judgement for that of the agency.” Miles Constr., 108 Fed. Cl. at 798 (citing Keeton Corrs., Inc.

v. United States, 59 Fed. Cl. 753, 755 (2004) (quoting Citizens to Preserve Overton Park, Inc. v.

Volpe, 401 U.S. 402, 416 (1971), abrogated on other grounds as recognized in Califano v.

Sanders, 430 U.S. 99, 105 (1977))). The court may overturn an agency decision only “if ‘(1) the

procurement official's decision lacked a rational basis; or (2) the procurement procedure involved

a violation of regulation or procedure.’” Centech Grp., Inc. v. United States, 554 F.3d 1029,

1037 (Fed. Cir. 2009) (quoting Impresa Construzioni Geom. Domenico Garufi v. United States,

238 F.3d 1324, 1332 (Fed. Cir. 2001)). In short, the court “look[s] to see whether the agency

considered the relevant factors and made a rational determination.” Keeton Corrs., 59 Fed. Cl. at

755 (citing Advanced Data Concepts, Inc. v. United States, 216 F.3d 1054, 1057-58 (Fed. Cir.

2000)).

ANALYSIS

A. Removal from and Restoration to the VetBiz VIP Database

Veterans claims that its removal from the VetBiz VIP database was “arbitrary, capricious,

[and] contrary to established law” on two grounds. See Mem. . . . in Support of Pl.’s Appl. for

TRO, Prelim. Inj., Permanent Inj., and Declaratory Judgment (Pl.’s Mem.) at 15, ECF No. 47.

First, “CVE made the decision to remove [Veterans] from the . . . database without considering

38 C.F.R. § 74.22” in violation of “the APA[ and Veteran’s] constitutionally protected

procedural due process rights.” Id. Second, Veterans’ removal was “unsupported by the facts”

because “[t]here is no evidence in the record that CVE even reviewed the SBA’s basis for issuing

the adverse determination.” Id. Notably, Veterans is not challenging 38 C.F.R. § 74.22 on

constitutional grounds or otherwise. See Hr’g Tr. 10:1-2 (adverting that the government asserted

that Veterans “is somehow challenging the regulation, [Subsection 74.22; Veterans] is not”);

Pl.’s Mot. at 11. It is Veterans’ view that Subsection 74.22 “establishes the procedural due

process safeguards for removing an SDVOSB from the . . . database” and that it “makes no

exceptions for negative SBA determinations” despite Subsection 74.2(e). See Pl.’s Mot. at 14.

As such, argues Veterans, VA’s denial of a 30-day notice and an opportunity to “explain[] why

9

the proposed ground(s) [did] not justify cancellation” was a failure to follow its own regulations

and thus necessarily was arbitrary and capricious. See id.; 38 C.F.R. § 74.22.

The government argues that the CVE did no more than act “in accordance with 38 C.F.R.

§ 74.2(e), which states that” CVE “will . . . immediately remove[]” the business adjudicated

ineligible by SBA from the database. Def.’s Cross-Mot. at 18. Further, the government asserts,

Subsections 74.22 and 74.2(e) “clearly apply to separate actions.” Id. at 19. Subsection 74.22

only applies when CVE believes that “a participant’s verified status should be cancelled,”

whereas Subsection 74.2(e) pertains to ineligibility due to SBA’s determination. See id. at 19-20.

The court concurs with the government that the two regulations at issue do indeed govern

separate actions. When the CVE believes that an SDVOSB has become ineligible, it follows the

procedures set out in Subsection 74.22, including providing 30-days’ notice and the opportunity

to make an argument to the agency. In contrast, Subsection 74.2(e) provides the agency with a

streamlined process, piggybacking off SBA’s proceedings. See 38 C.F.R. § 74.2(e). Any

argument by Veterans that it was denied due process in the context of regulatory protections is

ultimately unconvincing in this case. Veterans was a party to the SBA proceeding and had an

opportunity to be heard before the agency. Additionally, Subsection 74.2(e) has been in place

since 2010; Veterans had notice that an adverse decision by the SBA could trigger its removal

from the VIP database.

Even so, this court disagrees with the government that Subsection 74.2(e) relieves CVE

from any obligation to look beyond the fact that SBA has issued an adverse determination before

removing an SDVOSB from the VetBiz VIP database. As explained above, the eligibility

requirements in the VA and SBA SDVOSB set-aside programs are similar in some respects but

are materially divergent in others. The differences are insignificant if and when the SBA protest

giving rise to removal from the VIP database treats an area in which the regulations are the same

or similar, e.g., size of the business; if SBA determines that an SDVOSB is not small then it

would be justifiably disqualified from both programs. But, as in this case, an uncritical

application of Subsection 74.2(e) would require an SDVOSB’s immediate removal from the

VetBiz VIP database if the business fails to meet the SBA’s Wexford definition of

“unconditional” despite meeting the VA’s definition of the term as set out at 38 C.F.R. § 74.3(b).

It is unquestionably true that “an agency must abide by its own regulations,” AMS

Assocs., Inc. v. United States, 737 F.3d 1338, 1343 (Fed. Cir. 2013) (citing Fort Stewart Sch. v.

Federal Lab. Rel. Auth., 495 U.S. 641, 654 (1990), but it is equally true that it must apply them

rationally. See Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463

U.S. 29, 43 (1983). Subsection 74.2(e) does not take account of the differences between these

two programs, and it is arbitrary for VA to mechanistically apply Subsection 74.2(e) without

examining the basis for SBA’s ruling. In this case, VA’s removal of Veterans from the database

cost Veterans the opportunity to compete for a contract for which it was otherwise eligible. In

light of the distinct definitions of “unconditional ownership” in the two programs, CVE must

look beyond the fact of a ruling by SBA, to determine whether it was based on grounds

consistent with or contrary to VA’s eligibility regulations. VA’s letter notifying Mr. Montano of

Veterans’ removal stated only that the SBA “decision found that Veterans . . . was not owned

and controlled by one or more [s]ervice-[d]isabled [v]eterans.” AR. 4-14. There was no

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consideration of or finding that Veterans was ineligible due to an eligibility requirement

consistent with VA’s regulations. In sum, there was no “rational connection between the facts

found and the choice made,” thus rendering CVE’s action arbitrary and capricious. See State

Farm, 463 U.S. at 43 (citing Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962),

superseded by statute on other grounds as recognized in New York Shipping Ass’n v. Federal

Mar. Comm’n, 854 F.2d, 1338 (D.C. Cir. 1988)).

Therefore, the preliminary injunction that restored Veterans to the VetBiz VIP database is

hereby reaffirmed and made permanent.

B. The Relocation Solicitation

Both counsel for the government and counsel for Veterans have represented to the court

that, with regard to the relocation solicitation, Veterans has not been prejudiced by its wrongful

removal from the VetBiz VIP database. See Hr’g Tr. 7:12-17, 28:5-17. The VA voluntarily

extended the deadlines for proposals responding to the relocation solicitation. Hr’g Tr. 28:6-11.

Upon being restored to the database, Veterans submitted a bid and has been able to compete for

the relocation solicitation. Id. In the absence of any prejudice, the court need not take any

further action as to that pre-award procurement.

C. The Roofing Solicitation Cancellation

Veterans challenges the cancellation of the roofing solicitation as arbitrary and

capricious, alleging that it was “pretextual” and that the agency lacked a “compelling reason.”

Pl.’s Mem. at 8-9 (citing Overstreet Elec. Co., v. United States, 47 Fed. Cl. 728, 732 (2000)

(“[A]n award must be made to that responsible bidder who submitted the lowest responsive bid,

unless there is a compelling reason to reject all bids and cancel the invitation.”) (internal

quotation marks omitted)); see also Suppl. Compl. ¶ 19. Veterans argues that the government’s

rationale that “none of the responsive offers were reasonably priced” is “unreasonable on its

face” because Veterans’ bid was reasonable and “CVE illegally removed [Veterans] from the . . .

database.” Pl.’s Mem. at 9. As a remedy for this violation, Veterans asks the court to

“retroactive[ly] render[ Veterans] . . . eligible to compete for the [roofing] solicitation,”

effectively awarding Veterans the contract. See Pl.’s Mot. at 15 (heading).

The government disagrees, arguing that CVE had a compelling reason: “[T]he bids

received were over the budget allocated for the project.” Def.’s Cross-Mot. at 13. The

government explains that while Veterans’ bid was only [***] percent over the IGE, Veterans was

not a responsive bidder because it was not in the VIP database “at the time it submitted its bid,

which the solicitation required.” Id. The solicitation states: “All prospective bidders must be . . .

verified/visible/certified in VIP VetBiz . . . at the time of offer submission and before award of

this procurement.” AR 80-827. When the contracting officer checked the database on July 28,

the application deadline, to verify Veterans’ status, it was not there. See AR 92-918. The

government also contends that even if Veterans is entitled to be restored to the VIP database,

there is no basis for a retroactive restoration. Def.’s Cross-Mot. at 22-25. Rather, the

government asserts, the typical remedy for such wrongful removals is to “extend [the business’]

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year-long verified eligibility . . . to account for the days it was wrongfully excluded from the VIP

database.” Id. at 23 (citing KWV, Inc. v. United States, 111 Fed. Cl. 119, 128 (2013)).

The court concurs with the government. The court may overturn an agency decision only

“if ‘(1) the procurement official's decision lacked a rational basis; or (2) the procurement

procedure involved a violation of regulation or procedure.’” Centech Grp., 554 F.3d at 1037

(quoting Impresa Construzioni, 238 F.3d at 1332). The contracting officer looked only to the

fact that CVE had removed Veterans from the VIP database and could not have known that CVE

had acted arbitrarily. He followed the normal procedures for handling the procurement. Because

Veterans did not meet the requirements of a solicitation, it was ineligible to compete for the

contract. With Veterans disqualified, the remaining responsive bids were sufficiently above the

IGE that the officer had discretion to cancel and resubmit the solicitation. He did so. In short,

there was a rational connection between the facts as the contracting officer understood them and

the choices he made. See State Farm, 463 U.S. at 43. By acting rationally and following the

proper procurement procedures, he neither acted arbitrarily nor capriciously, and this court

cannot overturn his decision.

Veterans argues that Miles, 108 Fed. Cl. 792, supports its request for retroactive

restoration. Pl.’s Mot. at 15-16. Miles does not require that result. Unlike Veterans, Miles

Construction was eligible under the requirements of the solicitation when it submitted its bid.

See Miles, 108 Fed. Cl. at 795-96. It was only after it had been determined to be the lowest

bidder that its status was challenged and it was delisted. Id. When the court restored it to the

database and ordered the agency to “consider Miles’ apparent low bid in response to the

[s]olicitation,” it was with the understanding that it was “likely that [Miles Construction would]

have received the award but for” the intervening agency decision. Id. at 798, 806-07. In

contrast, at no time between the deadline for bid submission and the cancellation of the roofing

solicitation was Veterans eligible to compete for the roofing contract. This court issued a

preliminary injunction on August 22, 2017, setting aside the delisting of Veterans and restoring it

to the VetBiz VIP database, and that date demarcates Veterans’ eligibility to compete for VA

SDVOSB set-asides.

That is hardly to say that Veterans was not prejudiced by the CVE’s arbitrary application

of VA’s regulation as to the roofing solicitation or that no remedy is available. While the court

does not believe the retroactive injunctive relief sought by the Veterans is proper, the court does

award Veterans its reasonable bid preparation and proposal costs for the roofing solicitation.

CONCLUSION

For the reasons stated, Veterans’ motion for judgment on the administrative record is

GRANTED IN PART and DENIED IN PART, the government’s cross-motion for judgement on

the administrative record is GRANTED IN PART and DENIED IN PART. 10 This court’s

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Veterans’ motions for a second preliminary injunction, ECF Nos. 31 and 47, have been

consolidated with the merits in accord with RCFC 65(a)(2) and thus are moot. The

government’s motions to partially dismiss for lack of subject matter jurisdiction, for failure to

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preliminary injunction dated August 22, 2017, which set aside CVE’s decision removing

Veterans from the VetBiz VIP database, is hereby made permanent. Veterans’ year-long

eligibility in the VIP database shall be extended by 34 days to account for the period during

which it was wrongfully excluded from competing on VA procurement set-asides. Although

Veterans is denied retroactive injunctive relief for the cancellation of the roofing solicitation, it

shall recover its reasonable bid preparation and proposal costs regarding that solicitation.

There being no just reason for delay, the clerk shall enter judgment under RCFC 54(b) on

Veterans’ claims addressed by this opinion and order.

Insofar as bid preparation and proposed costs are concerned, Veterans shall submit a

reckoning of its bid preparation and proposal costs on or before January 17, 2018. The

government shall respond to Veterans’ submission of such costs by January 31, 2018.

It is so ORDERED.

s/ Charles F. Lettow

Charles F. Lettow

Judge

state a claim, and to strike, filed with its response to Veterans’ motions for preliminary

injunction, ECF No. 48, are likewise superseded and thus are moot.

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