Superior Optical Labs, Inc. v. United States

In the United States Court of Federal Claims

No. 20-1211C

(Filed Under Seal: October 21, 2020; Refiled: October 30, 2020*)

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*

SUPERIOR OPTICAL LABS, INC., *

*

* Bid Protest; Motion for Judgment on the

Plaintiff, * Administrative Record; Motion for

* Permanent Injunction; Veterans Benefits,

v. * Health Care, and Information

* Technology Act of 2006; 38 U.S.C. 8127;

THE UNITED STATES, * Rule of Two; SDVOSB and VOSB set-

* asides; AbilityOne program; Department

Defendant, * of Veteran Affairs Contracting

and * Preference Consistency Act; Small

* Business Set Aside; Statutory

WINSTON-SALEM INDUSTRIES FOR * Interpretation; Chevron Deference;

THE BLIND * Veterans Integrated Service Networks.

*

Defendant-Intervenor. *

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Robert J. Sneckenberg, with whom were John E. McCarthy Jr., and Rina M. Gashaw,

Crowell & Moring LLP, Washington, D.C., and Elizabeth Haws Connally, Connally Law,

PLLC, San Antonio, Texas, for Plaintiff Superior Optical Labs, Inc.

Vincent D. Phillips, Jr., Senior Trial Attorney, with whom were Jeffrey Bossert Clark,

Acting Assistant Attorney General, Robert E. Kirschman, Jr., Director, Douglas K. Mickle,

Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of

Justice, Washington, D.C., and Natica Chapman Neely, Staff Attorney, VA Office of

General Counsel, District Contracting National Practice Group, Washington, D.C., for

Defendant.

Jessica C. Abrahams, with whom was Dana B. Pashkoff, Faegre Drinker Biddle & Reath

LLP, Washington, D.C., for Intervenor Winston-Salem Industries for the Blind.

* This case was originally assigned to Judge Thomas C. Wheeler, who filed this opinion and order under seal

on October 21, 2020, which gave the parties 7 days to propose redactions. This case was transferred to Judge Edward

H. Meyers on October 28, 2020. This opinion is reissued for publication as Judge Wheeler entered it with redactions

of proprietary competition-sensitive information proposed by the parties. Redactions are indicated in the form of

[****].

OPINION AND ORDER

WHEELER, Judge.

This bid protest concerns the interpretation of a statutory exception contained in the

Department of Veterans Affairs Contracting Preference Consistency Act of 2020

(“Consistency Act”), Pub. L. No. 116-155, which amended the Veterans Benefits, Health

Care, and Information Technology Act of 2006 (“VBA”), Pub. L. No. 109-461. Under the

VBA, the Department of Veterans Affairs (“VA”) is required to set goals for providing

contracts to veteran-owned small businesses (“VOSBs”) and service-disabled veteran-

owned small businesses (“SDVOSBs”). The VBA includes a “Rule of Two” mandate,

which requires the VA to determine whether there are at least two veteran-owned small

businesses capable of performing the work prior to procuring any goods or services from

other providers. If the Rule of Two is satisfied, the VA must set-aside the procurement for

veteran-owned small business contractors.1

In this bid protest, Plaintiff, Superior Optical Labs, Inc. (“Superior Optical”),

challenges the VA’s decision to move the requirements that are currently set-aside for

veteran-owned small businesses back to the federal AbilityOne program, which requires

federal agencies to procure products and services from qualified non-profit agencies that

employ people who are blind or otherwise severely disabled. The requirements involve

prescription eyeglasses and optical services in the VA’s Veterans Integrated Service

Networks (“VISNs”) 2 and 7. As grounds for its protest, Superior Optical argues that the

VA’s decision to transition these requirements back to the AbilityOne program (1) violates

the recently enacted Consistency Act, (2) violates the VA’s own interpretation of the

Consistency Act detailed in its Class Deviation, and (3) is arbitrary and capricious. On

September 18, 2020, Winston-Salem Industries for the Blind (“IFB”), a qualified non-

profit AbilityOne entity set to takeover VISNs 2 and 7, intervened in this case.

Currently before the Court are the parties’ cross-Motions for Judgment on the

Administrative Record. For the reasons explained below, the Court finds that the VA’s

decision to transfer the VISN 2 and 7 requirements to the AbilityOne program violates the

Consistency Act. Accordingly, the Court GRANTS Superior Optical’s protest and its

accompanying request for a permanent injunction. The Court DENIES the Government’s

dispositive Motion for Judgment on the Administrative Record (“MJAR”).

1

For purposes of this opinion veteran-owned small businesses is used for both SDVOSBs and

VOSBs.

2

Background

I. AbilityOne Program

The Javits-Wagner-O’Day Act (“JWOD”), 41 U.S.C. §§ 8501–06, requires all

government agencies, including the VA, to purchase certain products and services from

designated non-profits that employ blind and otherwise disabled people. Congress enacted

the JWOD to provide employment opportunities for the blind and “other severely disabled”

individuals. Id. at § 8501. The JWOD created an independent agency, the Committee for

Purchase From People Who Are Blind or Severely Disabled (“AbilityOne Committee”), to

effectuate its purpose. Id. at § 8502. The AbilityOne Committee is charged with creating

a procurement list (“AbilityOne list”). Id. at § 8503(a). The AbilityOne list consists of

“suitable” products and services produced by non-profits that AbilityOne has identified as

non-profit entities that employ individuals who are blind or severely disabled. Id. at

§ 8503(a). Typically, a federal agency seeking to procure a product or service identified

on the AbilityOne list must acquire them from a designated AbilityOne provider. See id.

§ 8503. When compiling the AbilityOne list, the Committee works with agencies to

determine which products and services should be added. See id. at § 8503(d); PDS

Consultants, Inc. v. United States, 132 Fed. Cl. 117, 121 (2017), aff’d, 907 F.3d 1345 (Fed.

Cir. 2018).

II. The Veterans Benefit Act

On December 22, 2006, Congress passed the VBA to “increase contracting

opportunities” for veteran-owned small businesses. 38 U.S.C. § 8127(a). Specifically, it

directs the VA to set annual goals for procurement priority to veteran-owned small

businesses. Id. To that end, the VBA of 2006 creates a mandatory preference for veteran-

owned small businesses if the contracting officer, after conducting the Rule of Two

analysis, determines that there are at least two veteran-owned small businesses capable of

performing the work at a fair and reasonable price. See 41 U.S.C. § 8127(d)(1). The VBA

also provides VA contracting officers the ability to award contracts below certain dollar

thresholds to veteran-owned small businesses on a sole-source basis. Id. at § 8127(c); see

also id. at § 8127(b).

In 2016, the Supreme Court held in Kingdomware Technologies, Inc. v. United

States, 136 S. Ct. 1969 (2016), that the VA must conduct the Rule of Two Analysis when

procuring all VA goods and services “[e]xcept when the Department uses the

noncompetitive and sole-source contracting procedures in subsections (b) and (c)…”

Kingdomware Tech., 136 S. Ct. at 1977. In other words, if the requirements of the Rule

of Two were met the VA had to prioritize veteran-owned small businesses, not AbilityOne

suppliers, when procuring goods and services—even those on the AbilityOne list.

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Shortly thereafter, in 2017, a service-disabled veteran-owned small business filed a

bid protest in this Court challenging the VA’s decision to purchase eyewear services from

AbilityOne provider IFB (defendant-intervenor in this case) in four VISNs, including

VISNs 2 and 7, at issue here, without first conducting a Rule of Two analysis. See PDS

Consultants, 132 Fed. Cl. at 119–20. In PDS Consultants, Inc. v. United States, the Court

resolved an apparent conflict between the JWOD’s requirement that federal agencies

purchase certain items from small businesses that employ blind and disabled individuals

and the VBA’s requirement that the VA limit competition for its procurement to veteran-

owned small businesses.

On May 30, 2017, Senior Judge Firestone found that the VA should have applied

the Rule of Two to all procurements that took place after the VBA passed. See id. at 128.

The Federal Circuit affirmed, stating, “where a product or service is on the [AbilityOne]

List and ordinarily would result in the contract being awarded to a nonprofit qualified under

the JWOD, the VBA unambiguously demands that priority be given to veteran-owned

small businesses.” PDS Consultants, Inc. v. United States, 907 F.3d 1345, 1360 (Fed. Cir.

2018).

III. The Consistency Act

In response to the Federal Circuit’s holding in PDS Consultants, Congress passed

the Consistency Act of 2020, amending the VBA. The purpose of the Consistency Act was

to prioritize blind and severely disabled entities by requiring the VA to use AbilityOne

non-profit providers, rather than prioritizing veteran-owned small businesses, when

procuring any products or services added to the AbilityOne list prior to December 22, 2006.

See 38 U.S.C. § 8127(a); 165 Cong. Rec. E1597-03, 2019 WL 6885484 (Dec. 17, 2019).

Specifically, the Consistency Act provided that the Rule of Two analysis is not required

for procurements of covered goods or services that were added to the AbilityOne list prior

to the enactment of the VBA in 2006. See 38 U.S.C. § 8127(d)(2)(A). The Act transitioned

all covered products and services on the AbilityOne list back to the AbilityOne providers.

However, in passing the bill, the Senate added an exception to protect some

requirements that the VA had already transitioned to veteran-owned small businesses. Id.

at § 8127(d)(2)(B). The Senate exception stated that if the VA awarded a contract for a

covered product or service to a veteran-owned small business pursuant to a Rule of Two

determination between December 22, 2006 and August 7, 2020, the VA could not transition

these requirements back to the AbilityOne program until such time as a new Rule of Two

analysis was conducted and the Secretary of the VA determined in writing that there was

no reasonable expectation that two or more veteran-owned small businesses could compete

for the work. See id. Specifically, the Senate’s exception states that “subparagraph (A)

[mandating contracting with an AbilityOne entity] shall not apply in the case of a covered

product or service for which a contract was—(I) awarded under paragraph (1) after

December 22, 2006; and (II) in effect on the day of the date of the enactment of the

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Department of Veterans Affairs Contracting Preference consistency Act of 2020.” Id. In

other words, the Senate’s amendment protects contracts that were already awarded to

veteran-owned small businesses as a result of a Rule of Two determination.

At issue here is § 8127(d)(2)(B)(i)(I)’s reference to “awarded under paragraph (1),”

requiring the VA to set aside certain requirements for veteran-owned small businesses.

While the parties agree that this clause references § 8127(d)(1), they disagree as to when a

contract satisfies § 8127(d)(1)’s “awarded under” requirement. Section 8127(d)(1) states:

Use of Restricted Competition.—(1) Except as provided in paragraph (2)

and in subsections (b) and (c), for purposes of meeting the goals under

subsection (a), and in accordance with this section, a contracting officer of

the Department shall award contracts on the basis of competition restricted

to small business concerns owned and controlled by veterans if the

contracting officer has a reasonable expectation that two or more small

business concerns owned and controlled by veterans will submit offers and

that the award can be made at a fair and reasonable price that offers best value

to the United States.

IV. Class Deviation

Since the enactment of the VBA, the VA has issued several regulations and policies

to assist contracting officers. For example, on August 14, 2020, the VA issued a Class

Deviation amending its VA Acquisition Regulation (“VAAR”) to implement the

Consistency Act. See Dkt. No. 30, Ex. 6 (VA’s Aug. 14, 2020 Deviation Memo, available

at https://www.va.gov/oal/docs/business/pps/deviationVaar20200814.PDF). The 2020

Class Deviation directs contracting officers to continue to conduct a Rule of Two analysis

before purchasing certain items on the AbilityOne list. This includes items that were

awarded to veteran-owned small businesses pursuant to a Rule of Two analysis during the

covered period. The memorandum explains:

In summary, the new legislation requires a contracting officer of the

Department to procure covered products and services on the Procurement

List maintained by the Committee for Purchase from People Who Are Blind

or Severely Disabled (the Committee), through the AbilityOne Program, as

a priority mandatory Government source. The legislation also provides an

exception [the Senate’s exception at § 8127(d)(2)(B)] when a covered

product or service was procured from an eligible Service-Disabled Veteran-

Owned Small Business (SDVOSB) or Veteran-Owned Small Business

(VOSB) as a result of a VA Rule of Two determination between the period

after December 22, 2006 and the day before the date of enactment of the Act,

August 07, 2020. In such a case, the covered product or service shall

continue to be procured under VA’s SDVOSB/VOSB set-aside program,

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provided two or more SDVOSBs/VOSBs are expected to provide the same

or similar product at a fair and reasonable price, that offers the best value to

the United States.

Id. at 1–2.

V. The Facts

In response to the Federal Circuit’s decision in PDS Consultants, the VA conducted

market research and a Rule of Two determination for its prescription eyeglass requirements

in VISNs 2 and 7. After determining that there were at least two eligible veteran-owned

small businesses the VA awarded Superior Optical short-term sole-source contracts for

VISNs 2 and 7 to “immediately comply with PDS Consultants decision.” See AR Tab 7–

8. The VA further explained that “a short-term contract is considered to be in the best

interest of the Government in order to provide uninterrupted services, while pursuing a best

value contract solution. A competitive, long-term veteran-owned small business set-aside

solicitation is expected to be released on FBO on or around November 1, 2019.” AR Tab

8 at 24; see also AR Tab 7 at 19.

1. VISN 2

On January 8, 2006, prescription eyeglasses for VISN 2 were added to the

AbilityOne list. AR Tab 7 at 19. IFB, a qualified non-profit under the AbilityOne program,

was previously performing VISN 2. AR Tab 8 at 26. However, after the Federal Circuit’s

decision in PDS Consultants, the VA found that it was “no longer able to continue with the

current contract with [IFB] after the end of the existing option period (September 30,

2019).” Id. at 24. As a result, in May of 2019, the VA completed a Market Research

Report and a Justification and Approval (“J&A”) for VISN 2 to determine whether there

were two or more eligible veteran-owned small businesses capable of performing the work.

See AR Tab 7 at 14–21; AR Tab 8 at 22–27. The VA sent a Sources Sought Notice to four

potential veteran-owned small business contractors: AB Martin Services, Inc., LC Four

Enterprise, LLC, PDS Consultants, and Superior Optical. AR Tab 9 at 29. PDS

Consultants and Superior Optical responded that they were capable and interested in

fulfilling VISN 2’s requirements. Id. As a result of delays in conducting a long-term

procurement, the VA decided to proceed with a temporary sole-source award to Superior

Optical. AR Tab 8 at 24–25 (“At this time VISN 2 Downstate is pursuing a sole-source

short-term contract with PDS Consultants, Inc. and a decision was made to spread the

short-term requirements across the identified sources to provide as much opportunity to the

SDVOSB community as possible.”).

Superior Optical’s VISN 2 award began on October 1, 2019, and included a one-

year base period (until September 30, 2020) plus a six-month option (from October 1, 2020

to March 31, 2021). AR Tab 13 at 53. On July 17, 2020, Superior Optical received notice

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that VISN 2 intended to exercise the option period and continue services from October 1,

2020 through March 31, 2021. AR Tab 17 at 163. However, on August 18, 2020, the VA

Office of General Counsel notified the contracting officer that under the newly enacted

Consistency Act, the VISN 2 requirement was a “covered product” and because the award

with Superior Optical was under § 8127(c) (a sole-source award) and not § 8127(d), the

VA was required to use an AbilityOne vendor. Id. As a result, the VA spoke with IFB on

August 21, 2020, and determined that it would fulfill VISN 2 beginning October 1, 2020.

Id.

2. VISN 7

Similar to VISN 2, the VA conducted market research and determined that there

were at least two veteran-owned small businesses, Superior Optical and PDS Consultants,

capable of fulfilling the VA’s requirements under VISN 7. AR Tab 22 at 188. Again the

VA referenced PDS Consultants, explaining that even when a product or service is on the

AbilityOne list and would typically be awarded to an AbilityOne provider, the VBA

“unambiguously demands” that the VA prioritize veteran-owned small businesses, which

“directly impacts” VISNs 2 and 7 contracts with IFB. AR Tab 7 at 19; AR Tab 22 at 188.

On September 15, 2019, the VA awarded the first VISN 7 bridge contract to

Superior Optical. AR Tab 23 at 192. The VA’s Independent Government Cost Estimate

for VISN 7 determined that a full year of requirements was almost $[**********]. AR

Tab 20 at 183. However, a short-term sole-source contract could not exceed $5 million.

See 38 U.S.C. § 8127(c). In an effort to provide the VA with more time to

conduct a competitive award, the VA awarded Superior Optical a six-month sole-

source contract (from September 15, 2019 through March 14, 2020) with a maximum

price of $4,957,798. AR Tab 23 at 192; AR Tab 24 at 258.

On March 13, 2020, the VA executed a J&A to award another two-month bridge

contract to Superior Optical. AR Tab 28 at 264–70. The VA planned to award a one-year

competitive service-disabled veteran-owned small business contract within the next 60

days. Id. at 269. Thus, the VA concluded that “[a] short-term contract is considered to be

in the best interest of the Government in order to provide uninterrupted services, while

pursuing a long-term contract solution.” Id. at 266. In its J&A, the VA noted that it had

already conducted market research and identified three vendors who were capable of

performing the work for the VISN 7 eyeglass service. Id. at 266–67. On March 18, 2020,

the VA issued Solicitation No. 36C24720R0002 for a one-year, 100% veteran-owned small

business set-aside VISN 7 procurement. Dkt. No. 30, Ex. 8.

On May 15, 2020, the VA again entered into a bridge contract with Superior Optical,

this time for two weeks (from May 15, 2020 through May 31, 2020). AR Tab 31. The VA

stated that it was “finalizing the Pre-Award Phase of Solicitation 36C24720R0002, which

is scheduled to be awarded on May 15, 2020 [the date the bridge contract was to begin];

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however, there will need to be a transition period to cover the phase in.” AR Tab 31 at

337–38; see also id. at 340 (explaining that the VA had completed the technical evaluations

and was in the process of finalizing the pre-award documents for the competitive one-year

SDVOSB contract).

The VA continued to experience delays in awarding a contract under Solicitation

36C24720R0002, and on July 15, 2020, issued another two-week award to Superior Optical

(from July 15, 2020 through July 28, 2020). AR Tab 37 at 409. According to the VA’s

July 15, 2020 J&A, Solicitation 36C24720R0002 was expected to be awarded in two days

on July 17, 2020. Id. at 412. The VA never finalized Solicitation 36C24720R0002 and

instead continued to extend the short-term bridge contract. AR Tabs 39–40. On August

21, 2020, the VA cancelled Solicitation 36C24720R0002. Dkt. No. 30, Ex. 8; AR Tab 17–

18. Currently, the VA issues orders to Superior Optical on a month-to-month basis, which

will end on October 31, 2020. AR Tab 22 at 188.

VI. Procedural History

At the parties’ request, the Court considered this protest on an expedited basis. The

Government submitted a certified copy of the administrative record on September 23,

2020. On September 25, 2020, Superior Optical filed a MJAR pursuant to Rule 52.1 of the

Court of Federal Claims (“RCFC”). On September 30, 2020, the Government and IFB

filed cross-motions for judgment on the administrative record. The Government and IFB

contend that the statute is clear, and § 8127(d)(2)(B) permits some contracts previously

awarded to veteran-owned businesses to remain with those businesses instead of

transferring to an AbilityOne provider. On the merits, they argue that the plain language

permits only competitively awarded contracts to remain with veteran-owned small

businesses, not noncompetitive sole-source contracts such as Superior Optical’s VISNs 2

and 7 contracts. Briefing concluded on October 8, 2020, and oral arguments were

conducted on October 14, 2020.

VII. Present Dispute

On September 16, 2020, Superior Optical filed a complaint in this Court claiming

that the VA’s decision to procure VISNs 2 and 7 through the AbilityOne program is in

violation of the Consistency Act and the VA’s August 14, 2020 Class Deviation. Compl.

¶ 2. The parties disagree on how to interpret “awarded under paragraph (1)” in the

exception contained in the Consistency Act at 38 U.S.C. § 8127(d)(2)(B). The parties

agree that “paragraph (1)” refers to § 8127(d)(1), which directs the VA to set-aside

procurements for requirements that meet the Rule of Two. That is the extent to which they

agree. At the heart of the disagreement is whether the Consistency Act’s exception at

§ 8127(d)(2)(B) is limited to competitively awarded contracts.

Superior Optical argues that the VA’s transition of VISNs 2 and 7 to the AbilityOne

program violates the “plain text” of the Consistency Act. Dkt. No. 30 at 26. According to

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Superior Optical, “awarded under paragraph (1)” refers to the Rule of Two determination

required by § 8127(d)(1) “and is agnostic as to the specific contract type the VA ultimately

uses to fulfill the Rule’s mandate.” Dkt. No. 36 at 5. Superior Optical posits that

§ 8127(d)’s reference to subsections (b) and (c) merely indicates that the VA has the

“flexibility” to use noncompetitive procedures for awards under a certain dollar amount

but does not indicate that noncompetitive awards are necessarily excluded from § 8127(d).

See Dkt. No. 30 at 28–29; Dkt. No. 36 at 9–10. Once the VA determines that the Rule of

Two is applicable, Superior Optical contends the VA must then contract with a veteran-

owned small business but has the discretion to choose which type of contract to use. See

id. Superior Optical clarifies that it does not believe all noncompetitive awards will satisfy

§ 8127(d); rather, only those noncompetitive awards where the VA first conducted a Rule

of Two analysis and determined that two or more veteran-owned small businesses could

perform the work. Dkt. No. 36 at 9–10. Effectively, Superior Optical is saying that the

Senate exception in the Consistency Act turns on whether a Rule of Two determination

was made prior to the award; not whether competitive or noncompetitive procedures were

ultimately used. Id.

Even if the Consistency Act is ambiguous, Superior Optical argues that the VA

violated “the express text of the VA’s own Class Deviation.” Dkt. No. 30 at 33. Superior

Optical highlights that nowhere in the Class Deviation does it limit the Consistency Act to

only competitively awarded contracts. Dkt. No. 30 at 34; see also Dkt. No. 36 at 7. Rather,

the Class Deviation merely requires the VA to have (1) awarded a contract to a VIP-listed

veteran-owned small business and (2) conducted a Rule of Two determination. Dkt. No.

30 at 33–34. Superior Optical is a VIP-listed service-disabled veteran-owned small

business and the contracting officer made a determination that at least two VIP-listed

veteran-owned small businesses would submit offers for the same or similar product. See

AR Tab 7 at 20; AR Tab 9 at 29. Therefore, Superior Optical concludes that it also satisfies

the VA’s Class Deviation requirements.

To support its argument, Superior Optical includes a letter from Senator Roger F.

Wicker, who was involved in the drafting of the Senate amendment to the Consistency Act,

§ 8127(d)(2)(B). Dkt. No. 36, Ex. 12. Senator Wicker confirms that the goal was to

“protect Superior’s contracts (among others) from transition” and “the Senate’s focus was

on whether the VA had conducted a Rule of Two determination, not on whether a contract

was specifically issued as a sole source contract through a competition.” 2 Dkt. No. 36, Ex.

12. Superior Optical also includes a public statement by IFB regarding the Consistency

2

The Government filed a motion to strike Senator Wicker’s letter from the administrative record.

Dkt. No. 38. During oral arguments, the Court denied the Government’s motion, holding that it

was appropriate to include the letter as part of the court record in the protest. See Cannon v. Univ.

of Chicago, 441 U.S. 677, 688 (1979) (“Although we cannot accord these remarks the weight of

contemporary legislative history, we would be remiss if we ignored these authoritative expressions

concerning the scope and purpose [of the Act]….”).

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Act, explaining that the amendment would “not enable IFB Solutions to regain the VA

contracts lost last fall or all of the optical lab jobs supporting those contracts.” Dkt. No.

30, Ex. 11 (Press Release, IFB Solutions, Protecting Jobs for the Blind (last visited Oct.

12, 2020) (available at https://ifbsolutions. org/our-news/jobsfortheblind/)).

The Government and IFB respond that the Senate exception at § 8127(d)(2)(B)

applies only when a contract was previously awarded under the competitive procedures

detailed in § 8127(d)(1). See Dkt. No. 31 at 21; Dkt. No. 39 at 10. They accuse Superior

Optical of conflating sole-source contracts under § 8127(c) with competitive awards under

§ 8127(d). See Dkt. No. 31 at 21; Dkt. No. 39 at 13. According to the Government and

IFB, paragraph (1)’s language stating, “except as provided in paragraph (2) and in

subsection (b) and (c) [sole-source awards],” “expressly excludes” noncompetitive sole-

source contracts. Dkt. No. 31 at 21–22; see also Dkt. No. 39 at 13. “The plain language

of the statutory exception extends only to awards made under section 8127(d)(1), not to

any award that could be construed as ‘the direct result of the VA’s Rule of Two

determination’ as Superior contends.” Id. Accordingly, because Superior Optical’s

contracts are noncompetitive sole-source contracts, it is unable to satisfy the prerequisite

for the Senate’s exception to apply and the VA must procure VISNs 2 and 7 from an

AbilityOne non-profit provider.

The Government and IFB also disagree with Superior Optical’s interpretation of the

VA’s Class Deviation. They argue that only contracts under the set-aside program are

eligible under the Senate exception. Dkt. No. 31 at 24. Under the Class Deviation “[i]f a

contract for a covered product was previously awarded to a VIP-listed SDVOSB or VOSB

after December 22, 2006 and in effect August 07, 2020, the requirement shall continue to

be procured as a SDVOSB/VOSB set-aside…” Dkt. No. 39 at 18 (emphasis in the original).

According to the Government and IFB, Superior Optical misreads the Class Deviation and

ignores the requirement that only those contracts initially procured through a set-aside are

eligible. Id. This means, the Government says, that the Class Deviation’s reference to set

asides necessarily implicates the restricted competition procedures laid out in § 8127(d)(1)

“as only that section talks about set-aside competitive awards.” Dkt. No. 31 at 24; see also

Dkt. No. 39 at 17–18.

Discussion

I. Standard of Review

The Tucker Act grants this Court subject-matter jurisdiction over bid protests. 28

U.S.C. § 1491(b)(1). In a bid protest, the Court reviews an agency’s decision pursuant to

the standards set out in the Administrative Procedure Act (“APA”). 28 U.S.C.

§ 1491(b)(4); 5 U.S.C. § 706. The APA provides that “a reviewing court shall set aside

the agency action if it is arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law.” 5 U.S.C. § 706(2)(A).

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An agency’s decision does not violate the APA if the agency “provided a coherent

and reasonable explanation of its exercise of discretion.” Impresa Construzioni Geom.

Domenico Garufi v. United States, 238 F.3d 1324, 1332–33 (Fed. Cir. 2001). Further, an

agency must articulate a “rational connection between the facts found and the choice

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

U.S. 29, 43 (1983) (citation omitted). The Court’s review is “highly deferential” to the

agency as long as the agency has rationally explained its award decision. Bannum, Inc. v.

United States, 91 Fed. Cl. 160, 169–70 (2009).

Even if the agency acted without a rational basis, the Court cannot grant relief unless

the agency’s action prejudiced the protestor. See Bannum, Inc. v. United States, 404 F.3d

1346, 1351 (Fed. Cir. 2005). The erroneous agency action prejudices a protestor if, but for

the agency’s error, there was a “substantial chance” that the agency would have awarded

the contract to the protestor. Alfa Laval Separation, Inc. v. United States, 175 F.3d 1365,

1367 (Fed. Cir. 1999) (internal citation omitted); see also Bannum, 404 F.3d at 1353.

The Court reviews an MJAR to determine whether “given all the disputed and

undisputed facts, a party has met its burden of proof based on the evidence in the

record.” DMS All–Star Joint Venture v. United States, 90 Fed. Cl. 653, 661 (2010). In

other words, in evaluating the parties' cross-motions, the Court considers whether the

“protestor has met its burden of proof that an award is arbitrary, capricious ... or violates

to prejudicial effect an applicable procurement regulation.” Tech. Sys. Inc. v. United

States, 50 Fed. Cl. 216, 222 (2001).

The Court may make findings of fact where necessary. See Bannum, 404 F.3d at

1356. The existence of a material issue of fact, however, does not prohibit the Court from

granting an MJAR, and the Court is not required to conduct an evidentiary

proceeding. See id. at 1357 (instructing the Court of Federal Claims to make factual

findings under RCFC 52 “as if it were conducting a trial on the record”). In this case, the

relevant facts are not in dispute.

II. The Senate’s Amendment to the Consistency Act is Clear

Superior Optical’s first argument in support of its MJAR is that the VA violated the

Consistency Act when it attempted to transition VISNs 2 and 7 to the AbilityOne program.

The Consistency Act was created in response to the Federal Circuit’s PDS Consultants

decision, requiring the VA to conduct Rule of Two analysis for all procurements after the

VBA was passed. 907 F.3d at 1356. The Consistency Act removed the requirement that

the VA conduct a Rule of Two analysis before awarding covered products or services that

were added to the AbilityOne list prior to the enactment of the VBA in 2006. The question

before the Court is whether, after the passage of the Consistency Act, the VA was required

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to set-aside all contracts awarded under a Rule of Two analysis for veteran-owned small

businesses, or just those that were competitively awarded.

Superior Optical understands the Consistency Act to “prevent the VA’s re-transition

of contracts already awarded to veteran-owned small businesses as a result of a Rule of

Two analysis.” Dkt. No. 36 at 7. Superior Optical explains that VISNs 2 and 7 were

“awarded under paragraph (1)” because the VA first conducted a Rule of Two

determination, next determined it was required to set both VISNs aside for veteran-owned

small business, and only then chose to use a sole-source award, an exception “expressly

incorporated in paragraph (d)(1).” Dkt. No. 30 at 28–29. Moreover, Superior Optical

argues that “at all points, the VA’s actions were guided by and made ‘under’ the

requirements of paragraph (d)(1).” Id.

The Government and IFB have a slightly different understanding: “section

8127(d)(1) refers only to competitions between SDVOSBs under section 8127(d)…a

concept that is antithetical to a sole source award, which is an exception to competition and

necessarily presupposed the existence of only one available source.” Dkt. No. 39 at 10–

11; see also Dkt. No. 37 at 7. In the Government’s view, § 8127(d)’s language that

subsection (c) is “excepted” from this paragraph indicates that sole-source awards cannot

fall under § 8127(d). Dkt. No. 37 at 7.

To determine whether the statutory language is plain and unambiguous, the Court

looks at “the language itself, the specific context in which that language is used, and the

broader context of the statute as a whole.” Robinson v. Shell Oil Co., 519 U.S. 337, 341

(1997); see also Muwwakkil v. Off. of Pers. Mgmt., 18 F.3d 921, 924 (Fed. Cir. 1994).

The Court’s analysis, therefore, begins with the language of the statute itself. See Robinson

519 U.S. at 340. The Government and IFB misread the clear language of § 8127(d)(1),

which is not limited to competitively awarded contracts. Rather, the section addresses any

contracts that were awarded pursuant to a Rule of Two determination. It also includes an

exception for contracts under a certain dollar amount, explaining that those awards may be

awarded on a sole-source basis.

Under the VBA of 2006, the VA had to perform a Rule of Two inquiry that favors

veteran-owned small businesses prior to awarding the requirement to another contractor.

See PDS Consultants, 907 F.3d at 1345; see also Kingdomware Techs., 136 S. Ct. at 1977.

The Consistency Act amended the VBA to create a preference for the blind and severely

disabled over veterans in certain instances, but the Senate included an exception setting

forth a mandatory preference for contracting with veteran-owned small businesses that

satisfy § 8127(d) and were executed during a certain time period. 38 U.S.C.

§ 8127(B)(i)(I)–(II).

Nowhere in the Senate exception at § 8127(B)(i)(I) does it limit awards only to those

using competitive procedures. Rather, the Senate exception applies to all contracts

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“awarded under paragraph (1) [§ 8127(d)(1)].” Id. at § 8127(B)(i)(I). Section 8127(d)(1)

directs the VA to conduct competitive set-aside procurements for requirements that meet

the Rule of Two. However, requirements under a certain dollar threshold may be awarded

through noncompetitive processes laid out in subsections (b) and (c). Id. at § 8127(d)(1).

The Government and IFB read too much into the phrase “except as provided…in

subsection (b) and (c)” when they try to extinguish sole-source awards from § 8127(d)(1).

Section 8127(d) merely indicates that the VA may exercise its discretion and choose not to

conduct a Rule of Two analysis when issuing awards under a certain dollar threshold. See

Kingdomware Techs., 136 S. Ct. at 1977 (“Except when the Department uses the

noncompetitive and sole-source contracting procedures in subsections (b) and

(c), § 8127(d) requires the Department to use the Rule of Two before awarding a contract

to another supplier.”). Based on this language, once any award is issued to a veteran-owned

small business pursuant to a Rule of Two determination it necessarily falls under § 8127(d).

All three parties cite PDS Consultants, which also dealt with VISNs 2 and 7. In

PDS Consultants, the Federal Circuit explained that except when using non-competitive

procedures under Section 8127(b) or (c), the VA must “use the Rule of Two before

awarding a contract to another supplier.” PDS Consultants, 907 F.3d at 1360 (quoting

Kingdomware Techs., 136 S. Ct. at 1977) (emphasis supplied in PDS Consultants). In

other words, the VA is not required, but may choose, to conduct a Rule of Two analysis

when issuing a sole-source award under subsection b or c. However, once the Rule of Two

is satisfied § 8127(d) applies. See PDS Consultants, 907 F.3d at 1358 (“§ 8127(d) applies

only when the Rule of Two is satisfied”).

The Court agrees with Superior Optical that Section 8127(d)(1), formerly § 8127(d),

refers to all contracts awarded pursuant to a Rule of Two analysis. Contrary to the

Government’s and IFB’s assertion, § 8127(d)(1) is not limited only to those contracts that

were awarded pursuant to a Rule of Two analysis and on the basis of competition. Dkt.

No. 31 at 13; Dkt. No. 39 at 18. Under the VBA, the VA must “limit competition to

veteran-owned small business when the Rule of Two is satisfied,” period. PDS

Consultants, 132 Fed. Cl. at 127. The Consistency Act’s main goal was to ensure that in

some instances the blind and severely disabled had preference over veteran-owned small

businesses and to limit further transition of work away from the AbilityOne program as a

result of the broad application of the Rule of Two in PDS Consultants. See 165 Cong.

Rec. E1597-03, 2019 WL 6885484 (Dec. 17, 2019). However, the Consistency Act’s

language in its final form is a compromise and included an exception to protect certain

contracts that had already been transitioned to veteran-owned small businesses.

The Court in PDS Consultants found that the preference for veteran-owned small

businesses overrode the general contracting preference for the blind and visually impaired.

See 907 F.3d at 1359. Although Congress enacted the Consistency Act in direct response

to PDS Consultants and amended the VBA to provide a preference for the blind and

visually impaired in some instances, it does not change the fact that § 8127(d)(1) is not

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limited to competitively awarded contracts. It seems clear that Congress’ intent in adding

the exception to the Consistency Act was to prevent the VA from transitioning contracts

previously awarded to veteran-owned small businesses as a result of a Rule of Two analysis

back to the AbilityOne program. The Government and IFB concede that VISNs 2 and 7

were awarded pursuant to a Rule of Two analysis which determined that at least two

veteran-owned small businesses were capable of performing the requirements at a fair and

reasonable price. AR Tab 7 at 20; AR Tab 28 at 266. As a result, the VA understood that

it was required to set -aside the requirement for a veteran-owned small business and only

chose to issue a sole-source award “to immediately comply with the PDS Consultants

decision” but “inten[ded] to competitively award a long-term VISN-wide contract that

would be a total SDVOSB set-aside.” AR Tab 7 at 20.

Moreover, there is no indication that Congress meant to distinguish contracts

awarded competitively pursuant to a Rule of Two analysis versus those awarded

noncompetitively. Although the statements of one legislator are of limited persuasive

power, they are, nonetheless, relevant, particularly here where the legislative history is

sparse. See Fed. Energy Admin. v. Algonquin SNG, Inc., 426 U.S. 548, 564 (1976); Pacific

Gas & Elec. Co. v. Energy Res. Conserv. & Dev. Comm’n, 461 U.S. 190, 220 n.23 (1983).

Senator Roger F. Wicker, who was “intimately involved in the drafting of the Senate

amendment” explained that “[i]n drafting § 8127(d)(2)(B), the Senate’s focus was on

whether the VA had conducted a Rule of Two determination, not on whether a contract

was specifically issued as a sole source contract or through competition.” Dkt. No. 36, Ex.

12; see also North Haven Bd. of Educ. v. Bell, 456 U.S. 512, 530–31 (1982). Further

supporting Superior Optical’s contention that Congress’s primary concern was ensuring

contracts awarded pursuant to a Rule of Two determination—irrespective of the type of

procedures—were set aside for veteran-owned small businesses. While these statements

are by no means dispositive, they shed some light on the intent of the intended scope of

§ 8127(d)(2)(B) and lend credence to Superior Optical’s interpretation of the Consistency

Act. See Brock v. Pierce Cty., 476 U.S. 253, 263 (1986); United States v. O’Brien, 391

U.S. 367, 383 (1968).

Accordingly, based on the language of § 8127(d)(1), all requirements awarded

pursuant to a Rule of Two determination and awarded after December 22, 2006 and in

effect before August 7, 2020, shall continue to be set aside for veteran-owned small

businesses until such time as the Rule of Two is no longer satisfied.

III. The Chevron Method of Statutory Interpretation

Even if the statute is ambiguous, Superior Optical’s protest would still succeed. See

Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 (1984). Applying

Chevron deference, the Court first determines “whether Congress has directly spoken to

the precise question at issue. If the intent of Congress is clear, that is the end of the matter;

for the court, as well as the agency, must give effect to the unambiguously expressed intent

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of Congress.” Id. at 843. If the statute is ambiguous, the Court then should defer to an

agency’s interpretation of the statutory language, provided that interpretation is reasonable.

See id. at 842–43; United States v. Mead, 533 U.S. 218, 229 (2001).

The only reason the Government can even make the argument that VISNs 2 and 7

do not satisfy § 8127(d)(1) is because the VA’s actions led to extensive delays and

ultimately a failed competitive solicitation for veteran-owned small businesses. See AR

Tab 8 at 24; AR Tab 7 at 19. The VA continued to make empty promises to Superior

Optical, assuring it that a competitive award was forthcoming while extending what were

promised to be temporary bridge contracts just to pull the rug out from under Superior

Optical. Indeed, the VA’s conduct, through its Class Deviation and continued promise to

conduct a competitive procurement, further undermines the Government and IFB’s

position. See Myer v. Holley, 537 U.S. 280, 281 (2003) (deferring to agency’s reasonable

statutory interpretation); Joint Venture of Comint Sys. Corp. v. United States, 100 Fed. Cl.

159, 165 (2011) (“[W]ithin the bid protest context [] this court has adopted a flexible

approach…in putting together the evidence that will be considered…balancing the limited

nature of the court's review with the competing need to recognize potential exceptions to

treating the agency's submission as the four corners of the inquiry.”) (citation and

quotations omitted). For example, after PDS Consultants, the VA stated in its J&A that

when the Rule of Two is satisfied, it “unambiguously demands” that the requirement be set

aside for veteran-owned small businesses. AR Tab 7 at 19; Tab 8 at 24; Tab 22 at 188.

The VA then used its discretion to issue a sole-source award in compliance with what is

now paragraph 1 of the Consistency Act. AR Tab 7 at 20.

Furthermore, the VA’s Class Deviation explains that where a covered product or

service was procured as a result of a Rule of Two determination during the relevant period,

the “covered product or service shall continue to be procured under the VA’s

SDVOSB/VOSB set-aside program, provided two or more SDVOSBs/VOSBs are

expected to provide the same or similar product at a fair and reasonable price.” Dkt. No.

30, Ex. 6. The Government and IFB argue that the reference to the set-aside programs

“make clear that the contract had to initially be procured through a restricted competition

(i.e. a “set-aside”).” Dkt. No. 39 at 18; see also Dkt. No. 31 at 23–24. The Government’s

attempt to redefine the “set-aside program” to enhance its argument is unpersuasive. The

sentence preceding the reference to the set-aside program defines the “exception” as one

applying to covered products or services procured from veteran-owned small businesses

“as a result of a VA Rule of Two determination between the period after December 22,

2006 and the day before the date of enactment of the Act, August 7, 2020.” Id.

The VA’s Class Deviation says nothing about competitive awards. Instead, it

focuses only on contracts that were issued pursuant to a Rule of Two determination and

thus had to be “set-aside” for veteran-owned small businesses. Here, both VISNs 2 and 7

were issued pursuant to a Rule of Two determination during the covered period. AR Tab

8 at 25; AR Tab 22 at 188. The fact that the Government then chose to issue short-term

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bridge contracts—while it finalized the pre-award phase of a competitive solicitation for

VISN 7—does not negate the fact that the Rule of Two determination was met and the VA

had already “set-aside” those requirements for veteran-owned small businesses. See AR

Tab 14 at 56 (VISN 2 contract indicating that Superior Optical’s sole-source award was

“set aside 100% for service-disabled veteran-owned small business”); AR Tab 23 at 192

(VISN 7 contract indicating the same). Therefore, in giving meaning to the words “set-

aside program,” the Court must be mindful of the VBA’s broader purpose to “increase

contracting opportunities for small business concerns owned and controlled by veterans

and…by veterans with service-connected disabilities” and the fact that the Consistency Act

was the result of a compromise. 38 U.S.C. § 8127(a)(1). In sum, even if the statutory

language is ambiguous, which it is not, the Court is deferring to the VA’s earlier reasonable

interpretation.

Under all these circumstances, the Court cannot say that Superior Optical’s

conclusion is incompatible with the “exception” to the Consistency Act. Accordingly,

Superior Optical’s Motion for Judgment on the Administrative Record is GRANTED.

IV. Propriety of Injunctive Relief

Under its bid protest jurisdiction, the Court has the power to issue injunctive relief

pursuant to 28 U.S.C. § 1491(b). See PGBA, LLC v. United States, 389 F.3d 1219, 1223

(Fed. Cir. 2004) (“We give deference to the Court of Federal Claims’ decision to grant or

deny injunctive relief, only disturbing the court’s decision if it abused its discretion.”). In

deciding whether to grant a permanent injunction, a court considers (1) whether the

plaintiff has succeeded on the merits; (2) whether the plaintiff will suffer irreparable harm

without an injunction; (3) whether the balance of the hardships favors an injunction; and

(4) whether an injunction is in the public interest. Id. at 1228–29 (citation omitted).

First, for the reasons stated above, Superior Optical has succeeded on the merits.

Second, Superior Optical would suffer irreparable harm if the Court does not issue an

injunction. The “loss of potential work and profits from a government contract [can]

constitute[] irreparable harm.” Macaulay-Brown, Inc. v. United States, 125 Fed. Cl. 591,

606 (2016) (citation omitted). The relevant inquiry is whether a plaintiff has an adequate

alternative remedy. Id. Here, the VA transferred the VISN 2 and 7 requirements to the

AbilityOne program in violation of the Consistency Act. Thus, Superior Optical will lose

the opportunity to compete for VISNs 2 and 7 without injunctive relief. Furthermore,

Superior Optical’s loss of potential profits constitutes irreparable injury for purposes of

injunctive relief. See MORI Assocs., Inc. v. United States, 102 Fed. Cl. 503, 504 (2011).

Superior Optical states that these contracts represent more than [**] percent of its

revenue and it has already invested over $[*********] in equipment, facilities, and

personnel to meet the VA’s requirements and continue to compete for these requirements

in the future. Dkt. No. 30 at 40–42.

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Third, the balance of hardships favors Superior Optical. Superior Optical is

currently performing the VISN 2 and 7 contracts and injunctive relief will simply maintain

the status quo while the VA conducts a lawful procurement. See HP Enter. Servs., LLC v.

United States, 104 Fed. Cl. 230, 245 (2012). The VA is accustomed to bridge contracts

with Superior Optical and can avoid any interruptions in the VISN 2 and 7 requirements

through additional short-term contracts. Thus, setting aside the AbilityOne placement will

not result in a severe hardship for the VA.

Finally, the public has a profound interest “in preserving the integrity of the

procurement process by requiring the government to follow its procurement

regulations.” Hosp. Klean of Texas, Inc. v. United States, 65 Fed. Cl. 618, 624 (2005); see

also DGR Assocs., Inc. v. United States, 94 Fed. Cl. 189, 211 (2010). The VA acted in

violation of the law when it transferred the VISN 2 and 7 requirements to the AbilityOne

program; therefore, it is in the public interest for the Court to correct the illegality and

prevent the contract with IFB from proceeding. The VA must issue a new solicitation and

Superior Optical may compete for the award. Accordingly, balancing the harm to the

Government against the public interest served in maintaining the integrity of the

procurement process supports the issuance of a permanent injunction.

V. Permanent Injunction

The Department of Veterans Affairs (VA) is ENJOINED from awarding contracts

to a source designated under chapter 85 of title 41 for the VA VISN 2 Upstate requirement

for prescription eyeglasses and VISN 7 requirement for prescription eyeglasses and

optician services that are covered products and services (as defined in 38 U.S.C.

§ 8127(d)(2)(C)) absent a determination as set forth in 38 U.S.C. § 8127(d)(2)(B)(ii) by the

Secretary of the VA that when the current contracts for those requirements expire or are

terminated there is no reasonable expectation that, as described in 38 U.S.C.

§ 8127(d)(1)—(I) two or more small business concerns owned and controlled by veterans

will submit offers; and (II) the award can be made at a fair and reasonable price that offers

best value to the United States.

Conclusion

Based upon the foregoing, the Court GRANTS Superior Optical’s Motion for

Judgment on the Administrative Record and motion to permanently enjoin the VA from

transitioning the VISN 2 and 7 requirements to the AbilityOne program. The Court

DENIES the Government’s and IFB’s Motions for Judgment on the Administrative

Record. The Clerk of the Court is directed to enter judgment for Superior Optical. No

costs.

Within seven days, on or before October 28, 2020, counsel for the parties shall

carefully review this opinion for any proprietary, confidential, or other protected

information, and submit to the Court proposed redactions, if any, before the opinion is

17

released for publication. The Court has prepared this opinion with the intent of disclosing

the entire contents to the public. Therefore, any proposed redactions must be well

supported with an explanation of the specific reasons and authorities.

IT IS SO ORDERED.

s/ Thomas C. Wheeler

THOMAS C. WHEELER

Judge

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