Miles Construction, Llc v. United States

In the United States Court of Federal Claims

No. 12-597C

(Filed Under Seal: February 7, 2013)

(Reissued: February 14, 2013)

)

MILES CONSTRUCTION, LLC, ) Pre-award bid protest; disparate intra-

) agency decisions regarding the

Plaintiff, ) unconditional nature of a service-disabled

) veteran’s ownership of a small business;

v. ) evidence of “ownership” within the

) meaning of 38 C.F.R. § 74.3; prejudice;

UNITED STATES, ) remedy

)

Defendant. )

)

)

Edward T. Delisle, Cohen, Seglias, Pallas, Greenhall & Furman, P.C., Philadelphia, PA,

for plaintiff. With him on the briefs was Maria L. Panichelli, Cohen, Seglias, Pallas, Greenhall

& Furman, P.C., Philadelphia, PA.

Jeremiah M. Luongo, United States Department of Justice, Washington, D.C., for

defendant. With him on the briefs were Stuart F. Delery, Acting Assistant Attorney General,

Jeanne E. Davidson, Director, and Franklin E. White, Jr., Assistant Director, Commercial

Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C.

OPINION AND ORDER 1

LETTOW, Judge.

This pre-award bid protest is before the court on plaintiff’s motion for judgment upon the

administrative record and the government’s motion to dismiss, or in the alternative, cross-motion

for judgment. On March 5, 2012, plaintiff, Miles Construction, LLC (“Miles”), had obtained a

determination from the Department of Veterans Affairs’ (“VA’s”) Center for Veterans Enterprise

(“CVE”) that it was a qualified service-disabled veteran-owned small business (“SDVOSB”)

concern eligible to participate in VA’s Veterans First Contracting Program, which accords

1

Because this opinion and order might have contained confidential or proprietary

information within the meaning of Rule 26(c)(1)(G) of the Rules of the Court of Federal Claims

(“RCFC”) and the protective order entered in this case, it was initially filed under seal. The

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

confidential or proprietary information on or before February 13, 2013. The resulting redactions

are shown by asterisks enclosed by brackets, as “[***].”

priority to SDVOSBs and veteran-owned small businesses (“VOSBs”) for contracting

opportunities. Nonetheless, after Miles was the apparent lowest responsive and responsible

bidder for a solicitation set aside for SDVOSBs, an agency protest by the second-lowest bidder

resulted in a decision by VA’s Office of Small and Disadvantaged Business Utilization

(“OSDBU”) that Miles “d[id] not meet the status requirements of a SDVOSB concern” and was

therefore ineligible for awards under the Veterans First Contracting Program. AR 19-267 (Letter

from Thomas Leney to Morgan Slizofski (Aug. 27, 2012)). 2 Miles challenges that decision and

seeks to be reinstated into the Program and potentially to be awarded the contract from which the

protest stemmed.

FACTS 3

Miles is a limited liability corporation organized under the laws of the Commonwealth of

Pennsylvania. Compl. ¶ 8. Mr. Morgan Slizofski, a service-disabled veteran, owns 51 percent of

the company, with [***] owning the remaining 49 percent. Compl. ¶¶ 11-12. On January 19,

2011, Miles first applied for inclusion in the VA VetBiz Vendor Information Pages (“VIP”)

Verification Program as a SDVOSB. See Pl.’s Mem. . . . in Support of Pl.’s Mot. for Judgment

on the Admin. Record (“Pl.’s Mem.”) at 4. CVE conducted a thorough investigation of Miles,

performing an on-site examination of the company’s premises and a review of documents. AR

74-778 to -93 (Report of Harry Armstrong, CVE Examiner (Mar. 21, 2011)). After discussions

between representatives for CVE and Miles, Miles altered its operating agreement

(“Agreement”) by rescinding a supermajority requirement for certain actions and making other

changes. Pl.’s Mem. at 4; see also AR 74-778 to 75-794. Notwithstanding these changes, Miles’

application was denied on the ground that Mr. Slizofski still did not fully control the company in

accord with 38 C.F.R. § 74.4, which sets out the control requirements for a SDVOSB or VOSB.

See AR 77-796 to 800 (Letter from Gail Werner, Deputy Director of CVE, to Slizofski (Apr. 6,

2011)). After six months, the requisite waiting period identified in VA’s regulations during

which a rejected applicant may not file a new application, Miles again sought verified status as a

SDVOSB. In the intervening time, Miles revised its corporate documents to adhere to guidance

provided by CVE regarding “control.” Miles resubmitted its application on November 17, 2011.

AR 86-835. On March 5, 2012, CVE approved Miles as a SDVOSB and added it to the database

2

“AR ____” refers to the administrative record filed with the court in accord with RCFC

52.1(a). The administrative record has been subdivided into tabs. The first number in a citation

to the administrative record refers to a particular tab, and the number after the hyphen refers to

the page number of the administrative record, e.g., “AR 6-28” refers to page 28, which is found

in tab 6. The pages of the administrative record are paginated sequentially without regard to the

tabs.

3

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

administrative record of the procurement and the parties’ evidentiary submissions regarding

standing, prejudice, and equitable factors. See Bannum, Inc. v. United States, 404 F.3d 1346,

1356 (Fed. Cir. 2005) (bid protest proceedings “provide for trial on a paper record, allowing fact-

finding by the trial court”).

2

of companies eligible for Veterans First Contracting Program projects. AR 93-1003 (SDVOSB

Approval (Mar. 5, 2012)). 4

On May 21, 2012, VA opened bids for Solicitation Number VA-244-12-B-0455

(“Solicitation”), which involved a contract for the repair of a storm sewer at the Coatesville,

Pennsylvania VA Medical Center that was set aside for SDVOSB entities. AR 8-30. Miles

submitted a bid in response to the Solicitation and was the apparent lowest bidder. See AR 12-

246 to -47 (Abstract of Offers). On June 25, 2012, the second-lowest bidder, Veteran

Construction & Utility Services, Inc. (“Veteran”), challenged Miles’ eligibility as a SDVOSB

and lodged a protest with the Solicitation’s contracting officer. AR 14-249 to -56 (Veteran

Protest (June 25, 2012)). 5 In the protest letter, Veteran alleged a “[c]ontrol and ownership

violation” because it believed Miles and a non-SDVOSB, [***] , had common ownership and

control, thus rendering Miles ineligible for SDVOSB status. AR 14-250. Veteran alleged that

[***] was using the service-disabled veteran status of Miles’ owner, Mr. Slizofski, as a “pass

thru” from Miles to [***]. Id.

After a delay of more than six weeks, VA’s contracting officer forwarded the protest to

OSDBU’s Executive Director. AR 18-262 to -63 (Notice to OSDBU of Veteran Protest (Aug. 9,

2012)). OSDBU notified Miles of the protest on August 15, 2012, asking Miles to “respond

directly to the allegations made in the status protest.” AR 104-1028 (E-mail from Amy Endicott

to Slizofski (Aug. 15, 2012)). In a subsequent e-mail sent the same day, OSDBU noted that it

would “review the protest against [Miles] as well as complete another review of . . . company

documentation to ensure [Miles] meet[s] the requirements of 38 C.F.R. Part 74 as a valid

SDVOSB.” AR 104-1027 (E-mail from Endicott to Slizofski (Aug. 15, 2012)). OSDBU gave

Miles only one week to respond, “due to the time-sensitive nature of the Status Protest program.”

Id. Miles timely responded to the allegations of the protest and included supporting

documentation. See AR 105-1029 to -35 (Miles’ Response to Veteran Protest (Aug. 15, 2012)).

On August 27, 2012, OSDBU stated that it had investigated Veteran’s claims and did not see

evidence that Miles served as a pass through for [***] or that Mr. Slizofski did not possess the

requisite control over the company. See AR 19-264 to -68 (Letter from Thomas J. Leney to

Slizofski (Aug. 27, 2012)). OSDBU nonetheless advised Miles that it had concluded that

Mr. Slizofski did not possess unconditional ownership of the company as required by 38 C.F.R.

§ 74.3(b) because Articles X, XI, and XII of the company’s Operating Agreement allegedly

contained restrictions on the transfer of his ownership interest. Id. OSDBU advised that the

absence of unconditional ownership rendered Miles ineligible for SDVOSB status under 38

4

Miles’ eligibility certification was valid for one year from the date of verification. AR

93-1003 (SDVOSB Approval (Mar. 5, 2012)).

5

The Veterans Affairs Acquisition Regulation System (“VAAR”), codified at 48 C.F.R.

Parts 801-873, permits offerors to challenge another offeror’s SDVOSB status through an

agency-level protest considered by OSDBU. See 48 C.F.R. § 819.307.

3

C.F.R. Part 74, and thus Miles was ineligible for an award under the Solicitation and would be

removed from the VIP database. AR 19-267. 6

On September 13, 2012, Miles filed a pre-award bid protest action in this court, alleging

that OSDBU’s decision was arbitrary and capricious and contrary to law, and seeking

reinstatement as a SDVOSB as well as the contractual award. Although Miles sought a

preliminary injunction, the government represented that the contract would not yet be awarded,

and the court accordingly deferred ruling on Miles’ motion for a preliminary injunction and

consolidated the proceedings on a preliminary injunction with those on the merits in accord with

RCFC 65(a)(2). See Order Deferring Ruling on Mot. for Prelim. Inj. (Sept. 19, 2012), ECF No.

11. On October 24, 2012, Miles filed a motion for judgment on the administrative record, and on

November 9, 2012, the government filed a motion to dismiss, or in the alternative, a cross-

motion for judgment on the administrative record (“Def.’s Mot.”). Briefing of the cross-motions

was completed, and a hearing was held on December 4, 2012. 7

JURISDICTION

Under the Tucker Act as amended by the Administrative Dispute Resolution Act, Pub. L.

No. 104-320, § 12, 110 Stat. 3870, 3874 (Oct. 19, 1996), this court has jurisdiction over (1) pre-

award bid protests, (2) post-award bid protests, and (3) an alleged violation of a statute or

regulation in connection with a procurement:

[T]he United States Court of Federal Claims . . . shall have jurisdiction to render

judgment on an action by an interested party objecting to a solicitation by a

Federal agency for bids or proposals for a proposed contract or to a proposed

award or the award of a contract or any alleged violation of statute or regulation

in connection with a procurement or a proposed procurement. . . . [T]he United

States Court of Federal Claims . . . shall have jurisdiction to entertain such an

action without regard to whether suit is instituted before or after the contract is

awarded.

28 U.S.C. § 1491(b)(1) (emphasis added); see also Rothe Dev., Inc. v. United States Dep’t of

Def., 666 F.3d 336, 338 (5th Cir. 2011) (“[T]he Court of Federal Claims now retains exclusive

jurisdiction over ‘action[s] by an interested party’ ‘objecting to . . . any alleged violation of

statute or regulation in connection with a procurement or a proposed procurement.’” (quoting 28

U.S.C. § 1491(b)(1))).

6

Miles’ VetBiz profile was removed from the VIP database “[a]lmost immediately

following . . . OSDBU’s ruling.” Pl.’s Mem. at 9.

7

On January 31, 2013, the court issued a temporary restraining order barring VA from

awarding a contract for the storm sewer repair at the Coatesville, Pennsylvania VA Medical

Center for fourteen days or until issuance of the court’s decision on the merits, whichever was

sooner.

4

Miles alleges that VA contravened its regulations governing VOSB eligibility through an

improper and inconsistent application of 48 C.F.R. § 819.307 (pertaining to “SDVOSB/VOSB

Small Business Status Protests”) and 38 C.F.R. Part 74 (setting out VA’s “Veterans Small

Business Regulations”). Sections 74.3 and 74.4 of 38 C.F.R. Part 74 specify the standards for

CVE’s evaluation of applicants for VOSB status and the eligibility for inclusion in the Veterans

First Contracting Program, and those standards are explicitly incorporated by reference in the

VAAR provisions governing SDVOSB and VOSB small business status protests. See 48 C.F.R.

§ 819.307(c). Miles’ allegations thus properly invoke this court’s bid protest jurisdiction under

the third prong of Paragraph 1491(b)(1). See Systems Application & Techs., Inc. v. United

States, 691 F.3d 1374, 1380-81 (Fed. Cir. 2012) (“On its face, the statute grants jurisdiction over

objections to a solicitation, objections to a proposed award, objections to an award, and

objections related to a statutory or regulatory violation so long as these objections are in

connection with a procurement or proposed procurement.”); RAMCOR Servs. Group, Inc. v.

United States, 185 F.3d 1286, 1289 (Fed. Cir. 1999) (Ҥ 1491(b) . . . does not require an

objection to the actual contract procurement . . . . As long as a statute has a connection to a

procurement proposal, an alleged violation suffices to supply jurisdiction.”); Angelica Textile

Servs. v. United States, 95 Fed. Cl. 208, 215 (2010) (“The phrase ‘in connection with’ is very

sweeping in scope.” “[A] procurement ‘includes all stages of the process of acquiring property

or services, beginning with the process for determining a need for property or services and

ending with the contract completion and closeout.’” (quoting RAMCOR, 185 F.3d at 1289 (first

quote); 41 U.S.C. § 403(2) (second quote))). Accordingly, this court finds that it has jurisdiction

to consider this dispute under 28 U.S.C. § 1491(b)(1).

The government nonetheless contends that Miles lacks standing to challenge VA’s

actions in connection with the procurement because Miles “cannot show . . . that it was a

qualified bidder” and thus “cannot show that it had a substantial chance of securing the award.”

See Def.’s Mot. at 12-13. Standing in bid protests is framed by 28 U.S.C. § 1491(b)(1), which

requires that bid protests be brought by “interested parties.” The “interested party” standard is

more stringent than the “case or controversy” requirement of Article III of the Constitution. See

Systems Application & Techs., Inc., 691 F.3d at 1382 (citing Weeks Marine, Inc. v. United States,

575 F.3d 1352, 1359 (Fed. Cir. 2009)). To meet the “interested party” standard, Miles must

establish that it “(1) is an actual or prospective bidder; and (2) possess[es] the requisite direct

economic interest.” Id. (alteration in original). The posture of a protest determines the

evidentiary showing necessary to establish a “direct economic interest:”

Generally, to prove the existence of a direct economic

interest, a party must show that it had a “substantial chance”

of winning the contract. An exception to that standard is

when a prospective bidder challenges the terms of the

solicitation itself, prior to actually submitting a bid. In that

circumstance, the protestor can establish standing by

demonstrating that it suffered a “non-trivial competitive

injury which can be redressed by judicial relief.”

Orion Tech., Inc. v. United States, __ F.3d __, __, 2013 WL 141740, at *13 (Fed. Cir. Jan. 14,

2013) (internal citations omitted); see also Weeks Marine, 575 F.3d at 1361-62 (“We have not

5

had occasion to discuss what is required to prove an economic interest, and thus prejudice, in a

case such as this, where a prospective bidder/offeror is challenging a solicitation in the pre-award

context. In such a case, it is difficult for a prospective bidder/offeror to make the showing of

prejudice that we have required in post-award bid protest cases. The reason of course is that, in a

case such as this, there have been neither bids/offers, nor a contract award. Hence, there is no

factual foundation for a ‘but for’ prejudice analysis. . . . We therefore consider whether [plaintiff]

has demonstrated a ‘non-trivial competitive injury which can be addressed by judicial relief.’”

(internal citations omitted)).

In this instance, Miles is an actual bidder, because it submitted a bid in response to the

Solicitation. AR 12-246 to -47 (Abstract of Offers). Consequently, respecting “direct economic

interest,” Miles must show that it has a substantial chance of winning the pertinent contract. As

the government would have it, Miles cannot demonstrate that it had a substantial chance of

winning the contract because it was de-listed and is now prohibited from receiving any SDVOSB

contracts. Def.’s Mot. at 13. Such logic is circular and would preclude any qualified concern

from ever seeking a judicial remedy in response to an adverse decision by OSDBU. To the

contrary, Miles has demonstrated that it was the apparent lowest bidder and would likely have

received the award but for OSDBU’s decision. See AR 12-246 to -47 (Abstract of Offers); AR

13-248 (E-mail from Carol Pomraning to Slizofski (June 22, 2012)); AR 21-271. Accordingly,

Miles has standing to challenge VA’s actions in connection with the procurement. 8

STANDARDS FOR DECISION

Pursuant to 28 U.S.C. § 1491(b)(4), the court reviews a challenge to an agency’s actions

in connection with a procurement using the standards set out in the Administrative Procedure

Act, 5 U.S.C. § 706. See 28 U.S.C. § 1491(b)(4) (“In any action under this [S]ubsection, the

courts shall review the agency’s decision pursuant to the standards set forth in [S]ection 706 of

title 5.”). These standards permit the court to set aside an agency’s contracting decision if it is

“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” 5 U.S.C.

§ 706(2)(A), assuming the criteria for equitable relief are satisfied, see PGBA, LLC v. United

States, 389 F.3d 1219, 1224-28 (Fed. Cir. 2004).

Under the APA, this court’s review is limited to an evaluation of whether the agency’s

“decision was based on a consideration of the relevant factors and whether there has been a clear

error of judgment.” Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971),

8

The government cites to CS-360, LLC v. United States, 94 Fed. Cl. 488, 500 (2010) to

support its position. CS-360 is distinguishable. It concerned a company which, after being

removed from the VIP database by OSDBU, bid on a second solicitation and then challenged the

agency’s actions in connection with the second solicitation. Id. at 493-94.

The challengers in that case subsequently brought an action in district court against the

VA under the federal question statute, 28 U.S.C. § 1331, and the Administrative Procedure Act,

5 U.S.C. § 706, and obtained partial relief, consisting of a grant of summary judgment that VA

had “fail[ed] to provide a satisfactory contemporaneous explanation for its decision to deny CS

[-]360’s application for inclusion in the VetBiz VIP database.” CS-360, LLC v. United States

Dep’t of Veteran Affairs, 846 F. Supp. 2d 171, 196 (D.D.C. 2012).

6

abrogated in part by Califano v. Sanders, 430 U.S. 99, 105 (1977) (abrogating Overton Park to

the extent it recognized the APA as an independent grant of subject matter jurisdiction). In

conducting a review under these standards, the court may not “substitute its judgment for that of

the agency,” Keeton Corrs., Inc. v. United States, 59 Fed. Cl. 753, 755 (2004) (quoting Overton

Park, 401 U.S. at 416), and may overturn an agency's decision only if “the procurement official's

decision lacked a rational basis; or . . . the procurement procedure involved a violation of

regulation or procedure,” Impresa Construzioni Geom. Domenico Garufi v. United States, 238

F.3d 1324, 1332 (Fed. Cir. 2001); see also Superior Helicopter, LLC v. United States, 78 Fed.

Cl. 181, 187 (2007).

If a protester makes these showings, the court “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). To determine if a

permanent injunction should issue, “the court must consider whether (1) the plaintiff has

succeeded on the merits, (2) the plaintiff will suffer irreparable harm if the court withholds

injunctive relief, (3) the balance of hardships to the respective parties favors the grant of

injunctive relief, and (4) the public interest is served by a grant of injunctive relief.” Centech

Grp., Inc. v. United States, 554 F.3d 1029, 1037 (Fed. Cir. 2009) (citing PGBA, LLC, 389 F.3d at

1228-29).

ANALYSIS

A. Statutory and Regulatory Framework

The statutory predicate for the Veterans First Contracting Program is 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 at 38 U.S.C. § 8127-28). This Act

provides in pertinent part that “[i]n procuring goods and services pursuant to a contracting

preference under this title or any other provision of law,” VA “shall give priority to a small

business concern owned and controlled by veterans,” provided that the business is included in a

small business database maintained by VA. 38 U.S.C. § 8128. To implement this Act, VA

established the Veterans First Contracting Program in 2007, directing VA to consider SDVOSB

and VOSB entities as first and second priority.

For some time, VOSB and SDVOSB entities certified themselves and self-registered in

the VIP vendor database. Statutory amendments now set out at 38 U.S.C. § 8127(e) and (f)

clarified the responsibilities of the Secretary of the Department of Veterans Affairs in addressing

and verifying applications for inclusion in the database. See also VA Acquisition Regulation:

Supporting Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses, 74 Fed.

Reg. 64,619-01 (Dec. 8, 2009) (codified at 48 C.F.R. Parts 802, 804, 808, 809, 810, 813, 815,

817, 819, and 852) (effective Jan. 7, 2010); 75 Fed. Reg. 6098-01 (Feb. 8, 2010) (codified at 38

C.F.R. Part 74) (effective Feb. 8, 2010). The effect of those clarifications was the institution of

mandatory verification by CVE, even for businesses that may have previously self-certified.

Although VIP eligibility certification through CVE is governed by 38 C.F.R. Part 74, CVE’s

approval may be challenged through an agency-level bid protest with OSDBU, as provided in 48

C.F.R. § 819.307.

7

The standards for initial certification and eligibility reevaluation are congruent respecting

ownership and control because, as noted supra, Part 819 incorporates by reference Part 74 for

guidance on “ownership and control issues.” Part 74 addresses ownership and control in great

detail, couching the eligibility criteria in terms of what CVE considers to be qualifying. See 38

C.F.R. §§ 74.3 (ownership), 74.4 (control). In answer to the question “Who does [CVE]

consider to own a veteran-owned small business?” Section 74.3 dictates that 51 percent of a

concern must be “unconditionally and directly owned by one or more veterans or service-

disabled veterans.” 38 C.F.R. § 74.3. The regulation provides that

[o]wnership must not be “subject to conditions precedent,

conditions subsequent, executory agreements, voting trusts,

restrictions on assignments of voting rights, or other arrange-

ments 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.

38 C.F.R.§ 74.3(b).

Part 74 also provides procedures for CVE to consider cancellation of VOSB status.

Cancellation proceedings may be triggered by CVE “[w]hen CVE believes that a participant’s

verified status should be cancelled prior to the expiration of its eligibility term.” 38 C.F.R.

§ 74.22(a). CVE is required to give notice to the firm in question, which is provided a thirty-day

period in which to respond. § 74.22(b). CVE is obliged then to issue a decision setting forth the

specific facts and reasons for its result. § 74.22(c). An appeal process is provided. § 74.22(e).

The agency bid-protest procedures in the VAAR are more cryptic but comparable.

Protests relating to VOSBs or SDVOSBs “must be in writing and must state all specific grounds

for the protest.” 48 C.F.R. § 819.307(c)(1). They must be filed on or before the fifth business

day after bid opening in sealed-bid acquisitions or notification by the contracting officer of the

apparently successful offeror in negotiated acquisitions. § 819.307(c)(2). The regulation does

not in terms specifically provide an opportunity for the successful offeror to respond to the

protest, but as this case demonstrates, basic due process considerations apply to enable the

successful offeror to be heard. Paragraph (c)(3) of 48 C.F.R. § 819.307 is ambiguous in

describing the consequences that arise when OSDBU sustains a protest:

(3) If the Executive Director sustains a service-disabled veteran-owned

or veteran-owned small business status protest and the contract has already been

awarded, then the contracting officer cannot count the award as an award to a

VOSB or SDVOSB and the concern cannot submit another offer as a VOSB

or SDVOSB on a future VOSB or SDVOSB procurement under this part, as

applicable, unless it demonstrates to VA that it has overcome the reasons for the

determination of ineligibility.

8

§ 819.307(c)(3) (emphasis added). It is not apparent what opportunity a previously

successful offeror subject to a sustained protest would have to “overcome the reasons for

the determination of ineligibility,” id., either during the protest as such, or thereafter.

B. OSDBU’s Action

Miles posits four separate grounds in support of its claim that OSDBU’s decision to

remove it from the VIP database was arbitrary and contrary to law.

1. The Verification Assistance Brief.

Miles argues that OSDBU improperly relied upon a Verification Assistance Brief

(“VAB”) posted on a VA website to determine that the company was ineligible for SDVOSB

status. Pl.’s Mem. at 19. The pertinent VAB is one of six shown on the website and is entitled

“Transfer Restrictions.” 9 Miles claims that VA’s issuance of the VAB was an impermissible act

of rulemaking that did not follow proper procedure as set forth in 5 U.S.C. § 553. Pl.’s Mem. at

18. Miles argues that because the issuance of the VAB itself was procedurally improper,

OSDBU’s alleged reliance on the VAB in finding that Miles was not unconditionally owned by a

service-disabled veteran was arbitrary and capricious. Id. at 19. Furthermore, it contends that

because Miles had been verified as an SDVOSB by CVE, the later application of the VAB to

nullify Miles’ eligibility status was also arbitrary and capricious. Id. at 19-20. The government

counters that VABs are “not new rules or regulations;” rather, they “are intended to be

educational material for use by veterans, in order to assist veterans in determining whether their

business model fits the requirements of 38 C.F.R. Part 74.” Def.’s Mot. at 29.

The particular VAB at issue sets out Sections 74.3 and 74.4 of the regulations and then

lists six bullet points, the third of which states that “requiring approval of other

shareholders/members or a right of first refusal to purchase the Veteran's shares/interest for the

Veteran owner to transfer his shares/interest” “will prevent an applicant from receiving verified

status (due to ownership not meeting the ‘unconditional’ requirement).” Transfer Restrictions,

Department of Veterans Affairs, available at http://www.va.gov/osdbu/docs/vapVabTransfer

Restrictions.pdf (last accessed February 6, 2013). Miles represents, and the government does not

controvert, that the VAB was issued on or about November 23, 2011, five days after Miles

submitted its second application for verification as a SDVOSB. Pl.’s Mem. at 6.

The government’s contention that the VAB “was not relied upon by the agency,” Hr’g Tr.

32:18-20 (Dec. 4, 2012), is correct insofar as OSDBU’s explanation for its decision makes no

reference to the VAB. See AR 19-264 to -68 (OSDBU Decision). Nonetheless, OSDBU’s

9

The website is http://www.va.gov/osdbu/veteran/vapVab.asp (last accessed Feb. 6,

2013). The other five VABs shown are entitled “Board Governance,” “Trusts,” “Joint

Ventures,” “Full Time Control,” and “Community Property.” The website states that VABs have

been provided “to assist applicants in obtaining Verification for the Veterans First [P]rogram.”

Id. More specifically, “[t]he VAB were developed in order to clarify the rules associated with 38

C.F.R. [Part] 74.” Id.

9

decision tracks the pertinent bullet point set out in the VAB. In effect, the government asks the

court to ignore the VAB because it does not establish any rule, policy, or guidance to be applied

in OSDBU’s decisionmaking process. This posture seems counterintuitive in the circumstances,

but the court will honor the government’s representation and put aside Miles’ arguments

concerning the issuance and application of the VAB.

2. Unconditional Ownership.

OSDBU’s letter notifying Miles of its removal from the VIP database cited Articles X,

XI, and XII of the company’s Operating Agreement as containing restrictions on the transfer of

Mr. Slizofski’s ownership interest in violation of the “unconditional ownership” requirement of

38 C.F.R. § 74.3(b). AR 19-266. Two of those articles are beside the point. Article X simply

states that owners cannot transfer their ownership interests in contravention of the Operating

Agreement. AR 71-737. Article XII addresses transfers of ownership in the event of incapacity

or death. AR 71-740 to -41. VA’s regulation itself contains provisions specifically allowing

transfer upon the death or incapacity of a veteran owner without contravening the unconditional-

ownership requirement. See 38 C.F.R. § 74.3(e)(3) and (4). These portions of Miles’ Operating

Agreement provide no basis for OSDBU’s decision.

Article XI, then, is the provision with which the court must concern itself. In essence,

Article XI is a right-of-first-refusal clause, which affords the company, or the remaining

members of the company if the company declines, the first opportunity to purchase a member’s

shares, should he or she decide to sell. AR 71-737 to -40 (Article XI). The article states: “A

[m]ember shall not transfer a [m]embership [i]nterest unless the [m]ember shall have first

offered to sell such [m]embership [i]nterest to the [c]ompany and the other [m]embers in

accordance with the following provisions . . . .” AR 71-737(¶ 11.01). Thus, for the provision to

be operational, a bona fide offer to purchase or a stated intent by the member to make a gift must

first exist.

The government argues that the right of first refusal violates 38 C.F.R. § 74.3(b) because

the provision is an executory agreement. See Def.’s Mot. at 27. The government relies upon a

dictionary definition of “executory:” “that which is yet to be fully executed or performed; that

which remains to be carried into operation or effect; incomplete; depending upon a future

performance or event.” Def.’s Mot. at 27 (quoting Black’s Law Dictionary 570 (6th Ed. 1990)).

According to the government, a right of first refusal “is an executory agreement because it

prevents an owner from acting upon his ownership interest in instances such as a sale [that

depends] upon future approval by the other members of the company.” Def.’s Mot. at 27-28.

The government cites to two decisions of the Small Business Administration (“SBA”) in support

of its interpretation. See Def.’s Mot. at 27 (citing In the Matter of: Veterans Constr. Servs., Inc.,

SBA No. VET-167, 2009 WL 5646466 (Nov. 9, 2009); In the Matter of: Int’l Logistics Grp.,

LLC, SBA No. VET-162; 2009 WL 5942359 (Oct. 1, 2009)). The first case, Veterans

Construction, determined that a service-disabled veteran did not unconditionally own a company

within the meaning of 13 C.F.R. § 125.9, which governs eligibility requirements for the SBA’s

Service-Disabled-Veteran-Owned Small Business Concern program, because the operating

10

agreement contained tag-along rights. 10 The second case, International Logistics, concludes that

a right of first refusal violated the unconditional ownership provision of 13 C.F.R. § 125.9. The

findings in both instances relied on In the Matter of: The Wexford Group Int’l, Inc., SBA No.

SDV-105, 2006 WL 4726737 (June 29, 2006), which reasoned:

In the context of 13 C.F.R. § 125.9, 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.

2006 WL 4726737, at *6.

In this instance, a different regulation, 38 C.F.R. § 74.3, is at issue. Unlike 13 C.F.R.

§ 125.9, Section 74.3 contains an extended definition of unconditional ownership. See 38 C.F.R.

§ 74.3(b) (generally providing that “[o]wnership 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”). From this general starting point, the regulation notes that provisions causing

ownership benefits to go to another “after death or incapacity” do not affect the unconditional

nature of ownership. Id. In the same vein, “[t]he 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. (emphasis added). In sum, Section

74.3(b) modifies “unconditional” ownership to mean something other than the categorical

bounds of the dictionary definition of the word “unconditional.”

Apparently no reported decisions address the scope of executory agreements in the

specific context of Section 74.3(b). Most familiarly, the issue has arisen in the bankruptcy

context. There, courts have adopted a pragmatic definition of what qualifies as an executory

contract, noting that “the inquiry is whether both parties to the contract have unperformed

10

Tag-along rights “allow the other owners to participate in the selling owner's transfer to

third parties on the same terms and conditions. For example, owners B, C and D may have a

right of first refusal to participate in A's attempted sale of a 12.5 [percent] interest on a pro-rata

basis determined by the respective ownership percentages of all four owners. If B, C and D all

decided to participate, each of the owners (including A) would sell a 4-1/4 [percent] interest to

the purchaser on the same terms and conditions. Obviously, this severely dilutes A's efforts to

obtain liquidity and co-sale rights are considered to be a substantial transfer impediment.” 4

Business Transactions Solutions § 25:12 (internal citations omitted).

11

obligations that would constitute a material breach if not performed. If so, the contract is

executory.” In re Allentown Ambassadors, Inc., 361 B.R. 422, 444 (Bankr. E.D. Pa. 2007); see

also In re Capital Acquisitions & Mgmt. Corp., 341 B.R. 632 (Bankr. N.D. Ill. 2006); In re The

IT Group, Inc., Co., 302 B.R. 483 (Bankr. D. Del. 2003) (determining that normal commercial

rights of first refusal were not executory contracts under the Bankruptcy Code). “While almost

all agreements to some degree involve unperformed obligation[s] on either side, such an

expansive definition of the term ‘executory’ is not what Congress enacted through its choice of

language in [the Bankruptcy Code].” Gouveia v. Tazbir, 37 F.3d 295, 298-99 (7th Cir. 1994).

This reasoning seems relevant to the court’s interpretation of C.F.R. § 74.3(b). A right of first

refusal does not necessarily burden either party with unperformed obligations that would

constitute a material breach if not performed.

Furthermore, the language of C.F.R. § 74.3(b) illustrates that by prohibiting executory

agreements, the drafters were attempting to prevent “ownership benefits,” such as voting rights

or the distribution of profits or losses, from falling into the hands of non-veterans, even as the

company appeared to operate under the auspices of the veteran majority owner. Like the

encumbrance of veteran-owned stock as collateral, inclusion of a standard right of first refusal in

an operating agreement is a “normal commercial practice[],” 38 C.F.R. § 74.3(b), that does not

hinder the veteran-owner’s interest unless the veteran receives a bona fide offer and chooses to

sell. Moreover, upon a sale, the company would not automatically retain its eligibility for the

VIP database, because it may no longer be owned by a veteran who could qualify for the

database. See 38 C.F.R. § 74.3(e)(4) (requiring CVE to verify that all eligibility requirements

continue to be met by the concern and the new owners). In sum, the right of first refusal

provision in Article XI is not presently executory, is a standard provision used in normal

commercial dealings, and does not burden the veteran’s ownership interest unless he or she

chooses to sell some of his or her stake. As a result, Article XI, Paragraph 11.01 does not affect

the veteran’s unconditional ownership with regard to C.F.R. § 74.3(b). The decision by OSDBU

to the contrary, i.e., that Articles X, XI, and XII of the operating agreement rendered Miles

ineligible for the VIP database, was arbitrary and capricious and contrary to law.

3. OSDBU’s Consideration of Grounds Not Raised by the Contracting Officer or

Agency Protester.

Miles additionally argues that OSDBU violated 48 C.F.R. § 819.307 by reviewing the

veteran’s unconditional ownership, a ground it contends was not raised by the Protest. Pl.’s

Mem. at 20. The regulation governing the protest process states that “the Executive Director. . .

[of OSDBU] shall decide all protests on service-disabled veteran-owned or veteran-owned small

business status whether raised by the contracting officer or an offeror. Ownership and control

shall be determined in accordance with 38 C[.]F[.]R[.] part 74.” 48 C.F.R. § 819.307(c). The

regulation further states that “[a]ll protests must be in writing and must state all specific grounds

for the protest. Assertions that a protested concern is not a service-disabled veteran-owned or

veteran-owned small business concern, without setting forth specific facts or allegations, are

insufficient.” 48 C.F.R. § 819.307(c)(1).

Miles argues that this language confines OSDBU to issues specifically raised by a

protesting offeror or the contracting officer. Pl.’s Mem. at 20-21. Miles relies upon 38 C.F.R.

12

§§ 74.21 and 74.22 to support its interpretation of Section 819.307, because these regulations

empower CVE, not OSDBU, to initiate an investigation if VA believes a participant’s verified

status should be canceled prior to the expiration of its eligibility term. See Pl.’s Mem. at 23-26.

Section 74.21 provides that CVE “may cancel the ‘verified’ status button for good cause . . .

including [f]ailure by the participant to maintain its eligibility for program participation [or]

[f]ailure by the participant for any reason . . . to maintain ownership, management, and control

by veterans, service-disabled veterans[,] or surviving spouses.” 38 C.F.R. § 74.21(c). Section

74.22 requires that the veteran participant be given notice of CVE’s proposed grounds for

removal and a thirty-day period within which it can respond. When read in concert, Miles

argues, these regulations give CVE the responsibility for investigating whether a verified

company has maintained its status, while OSDBU should only address verification allegations

specifically raised in protests. See Pl.’s Reply at 14, ECF No. 34.

In its protest letter, Veteran focused on the allegation that Miles Construction was a “pass

thru” for another construction company, AR 14-249, whose owner is a minority owner of Miles,

see AR 105-1033. Veteran asserted that the two companies were affiliated by their common

ownership, meaning that Miles did not meet the standard requiring “at least 51 percent of each

class member interest [to] be unconditionally owned by one or more veterans or service[-

]disabled veterans.” AR 14-250 (quoting 38 C.F.R. § 74.3). Veteran neither mentioned nor

addressed restrictions on Mr. Slizofski’s ownership interest beyond these contentions that Mr.

Slizofski’s ownership interest is a façade and that another company actually controls Miles. 11

Here, OSDBU interpreted 48 C.F.R. § 819.307(c) in a manner that allowed it to expand

the protest to encompass Miles’ general compliance with the verification requirements. The

government argues that OSDBU’s interpretation is reasonable because it provides a streamlined,

separate path for OSDBU to make a “time sensitive,” “final” decision about whether a company

is eligible for a procurement set aside for entities in the VIP database in response to a bid protest.

H’rg Tr. 37:1-38:6. This argument has some basis. Certainly agencies have a responsibility to

reach decisions on protests promptly. Moreover, the court gives deference to OSDBU’s position

that it can reach beyond a protester’s allegations or a contracting officer’s refusal to raise

additional issues. 12 That circumstance, however, does not excuse a failure to provide basic due

process to affected offerors. An agency should not act without affording an entity whose award

or projected award is protested with notice of an alleged defect and an opportunity to respond.

An interpretation of 48 C.F.R. § 819.307(c) that does not allow this basic procedural due process

is plainly erroneous and cannot be upheld.

11

The parties do not dispute that the contracting officer did not raise any further issues

when forwarding the protest to OSDBU. See AR 102-1021 to -24 (documentation of the transfer

of the protest from the contracting officer to OSDBU).

12

An agency’s interpretation of its regulations is “controlling unless ‘plainly erroneous or

inconsistent with the regulation.’” Auer v. Robbins, 519 U.S. 452, 461 (1997) (quoting

Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 359 (1989) (in turn quoting Bowles

v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945))).

13

4. OSDBU’s Cancellation of Miles’ Status as a SDVOSB.

Miles argues that the termination of its status as an SDVOSB was arbitrary and

capricious because OSDBU did not follow the cancellation procedures set forth in 38 C.F.R.

§ 74.22, which include a right of response, a waiting period, and a right of appeal. Pl.’s Mem. at

24-25, 27. In response, the government contends that the agency-protest process set forth in 48

C.F.R. § 819.307 does not incorporate those procedural requirements and that OSDBU’s action

was sufficient under the agency-protest system. Def.’s Mot. at 30, 32-33.

48 C.F.R. § 819.307 assigns responsibility to the Executive Director of OSDBU to

“decide all protests on service-disabled veteran-owned or veteran-owned small business status

whether raised by the contracting officer or an offeror.” 48 C.F.R. § 819.307(c). The regulation

specifies that ownership and control issues “shall be determined in accordance with 38

C[.]F[.]R[.] part 74.” Id. The regulation then sets forth several procedural requirements related

to the protest and investigatory process, namely that all protests must be in writing and must state

“all specific grounds for the protest,” and that protests must be submitted to the contracting

officer, who must receive them by close of business on the fifth business day after bid opening or

after notification by the contracting officer of the apparently successful offeror. Id.

As a matter of administrative law, OSDBU’s determination falls within the category of

informal agency adjudication. 13 Section 555 of the APA establishes rudimentary “procedural

requirements for informal adjudication.” Systems Plus, Inc. v. United States, 69 Fed. Cl. 757,

767 (2006) (citing Advanced Sys. Tech., Inc. v. United States, 69 Fed. Cl. 474, 484 (2006) (in

turn citing Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 655 (1990) and quoting

Ronald J. Krotoszynski, Taming the Tail That Wags the Dog: Ex Post and Ex Ante Constraints

on Informal Adjudication, 56 Admin. L. Rev. 1057, 1059 (2004))). Section 555(b) of the APA

provides that a party is entitled to be heard in an agency proceeding, absent exigent

circumstances:

A party is entitled to appear in person or by or with counsel or other

duly qualified representative in an agency proceeding. So far as the

orderly conduct of public business permits, an interested person may

appear before an agency or its responsible employees for the presentation,

adjustment, or determination of an issue, request, or controversy in a

proceeding, whether interlocutory, summary, or otherwise, or in

connection with an agency function.

5 U.S.C. § 555(b); see also Advanced Sys. Tech., Inc., 69 Fed. Cl. at 484 (“Further, [S]ection

555(b) is ‘universally understood to establish the right of an interested person to participate in an

13

See 5 U.S.C. §§ 551(5) (“‘rule making’ means agency process for formulating,

amending, or repealing a rule”), 551(7) (“‘adjudication’ means agency process for the

formulation of an order”). Formal, as contrasted to informal, adjudication procedures are

addressed by 5 U.S.C. § 554(a), which “applies . . . in every case of adjudication required by

statute to be determined on the record after opportunity for an agency hearing.” 5 U.S.C.

§ 554(a).

14

on-going agency proceeding.’” (quoting Block v. Securities and Exch. Comm’n, 50 F.3d 1078,

1085 (D.C. Cir. 1995))). The Supreme Court in Pension Benefit indicated that a party's

entitlement to the protections afforded by Section 555 corresponds to procedural due process.

See 496 U.S. at 655-56. In that respect, “[t]he fundamental requirement of due process is the

opportunity to be heard ‘at a meaningful time and in a meaningful manner.’” Mathews v.

Eldridge, 424 U.S. 319, 333 (1976) (quoting Armstrong v. Manzo, 380 U.S. 545, 552 (1965)).

Although 48 C.F.R. § 819.307 did not explicitly call for it, OSDBU notified Miles of the protest

and provided it an opportunity to respond to the specific allegations in the protest letter. See AR

104-1027 to -28 (E-mail exchange between Endicott and Slizofski). OSDBU did not, however,

notify Miles about its self-initiated “unconditional ownership” examination. Accordingly, Miles

had no opportunity to address OSDBU’s position that Mr. Slizofski’s ownership was restricted in

a disqualifying way. No exigent circumstances curtailed Miles’ opportunity to be heard in this

regard. 14 In short, OSDBU’s examination contravened “the minimal requirements” for informal

adjudication set forth in Section 555 of the APA. Pension Benefit, 496 U.S. at 655; see also

Henry J. Friendly, Some Kind of Hearing, 123 U. Pa. L. Rev. 1267, 1297-98 (1975) (postulating

that more severe governmental actions require greater procedural safeguards). Therefore,

OSDBU’s decision is invalid under Section 706(2)(A) of the APA. See Impresa Construzioni,

238 F.3d at 1332. 15

C. Prejudice

OSDBU’s interpretation of unconditional ownership, along with its violative

interpretations of the procedural requirements of 48 C.F.R. § 819.307, amounted to arbitrary and

capricious conduct. This finding does not end the inquiry, however. “To prevail in a bid protest,

a disappointed offeror must show both significant error in the procurement process and prejudice

to its posture in the process.” PGBA, LLC v. United States, 60 Fed. Cl. 196, 203 (2004) (citing

Advanced Data Concepts, Inc. v. United States, 216 F.3d 1054, 1057 (Fed. Cir. 2000)), aff’d, 389

F.3d 1219. To establish prejudice, “a protester must show that there was a ‘substantial chance’ it

would have received the contract award absent the alleged error.” Banknote Corp. of Am. v.

United States, 365 F.3d 1345, 1351 (Fed. Cir. 2004).

14

The government contends that 48 C.F.R. § 819.307 sets forth a “more streamlined

process of review necessitated by the time-sensitive nature of procurement cases” than the

normal cancellation process dictated by 38 C.F.R. § 74.22 and used outside of the bid protest

setting. See Def.’s Mot. at 30. Particular bid protests can indeed be time sensitive. Nonetheless,

as a generic matter, VA’s agency protests are not so constrained by time that notice and an

opportunity to be heard can be cast aside.

The government’s “streamlined process” argument in this particular case is severely

undercut by the fact that VA’s contracting officer waited six weeks to forward Veteran’s protest

to OSDBU for action. See supra, at 3.

15

After OSDBU decided to cancel Miles’ SDVOSB status, Miles attempted to satisfy

OSDBU’s characterization of the unconditional-ownership requirement and regain its status by

submitting a revised operating agreement that did not contain the provisions relating to a right of

first refusal. See Pl.’s Mem. at 22-23. Miles’ effort was ignored by OSDBU.

15

The prejudice inquiry in this determination on the merits is distinct from the jurisdictional

determination of the existence of prejudice to provide standing as an “interested party.” See

Distributed Solutions, Inc. v. United States, 104 Fed. Cl. 368, 377 (2012) (citing Engage

Learning, Inc. v. Salazar, 660 F.3d 1346, 1353–54 (Fed. Cir. 2011)). However, “if none of the

challenged agency decisions survives judicial review — i.e., if all decisions alleged to be

unlawful are adjudged to be so — a second prejudice inquiry would simply duplicate the first

and would thus be redundant.” Linc Gov’t Servs., LLC v. United States, 96 Fed. Cl. 672, 696

(2010). In this instance, challenges to OSDBU’s decision have been upheld. Thus, the prejudice

inquiry is truncated. But for OSDBU’s arbitrary and capricious interpretations of the meaning of

“unconditional ownership” in 38 C.F.R. § 74.3 and its use of improper procedures to implement

48 C.F.R. § 819.307, Miles would have remained an eligible SDVOSB and, as the lowest bidder,

it would have had a substantial chance of receiving the award under the Solicitation. In short,

Miles has shown that it was prejudiced by OSDBU’s errors.

D. Relief

The court may award declaratory or injunctive relief that is proper in the circumstances.

See 28 U.S.C. § 1491(b)(2). To determine if a permanent injunction should issue, “the court

must consider whether (1) the plaintiff has succeeded on the merits, (2) the plaintiff will suffer

irreparable harm if the court withholds injunctive relief, (3) the balance of hardships to the

respective parties favors the grant of injunctive relief, and (4) the public interest is served by a

grant of injunctive relief.” Centech Grp., 554 F.3d at 1037.

1. Success on the merits.

As established supra, Miles has succeeded on the merits of its complaint.

2. Irreparable harm.

Miles contends that it will suffer irreparable harm because of lost profits. Pl.’s Mem. at

29. More drastically, Miles notes that the removal of its eligibility to compete for SDVOSB

procurements, which constitute a substantial amount of its work, threatens Miles’ ability to

continue as a viable business. Id. (“It is an unfortunate reality of the construction business that

the inability to bid on [p]rojects for only several months can have a devastating, or even terminal,

effect on a contractor’s business.”). Removal from the SDVOSB list prevents Miles from

bidding on any future SDVOSB set-aside contracts. The injunctive relief contemplated here

(setting aside OSDBU’s removal of Miles from the VIP database) would circumvent this type of

harm because Miles would once again be eligible to compete for and to receive SDVOSB set-

aside contracts. The government argues that economic loss, without more, cannot constitute

irreparable harm. Def.’s Mot. at 35. Its argument is misplaced. The real harm suffered by Miles

is the denial of the opportunity to compete for the Solicitation award and for future SDVOSB

set-aside contracts. Denial of the opportunity to compete for a contract can constitute irreparable

harm. See, e.g., Electronic On-Ramp, Inc. v. United States, 104 Fed. Cl. 151, 169 (2012);

NetStar–1 Gov’t Consulting v. United States, 101 Fed. Cl. 511, 530 (2011). In short, Miles will

suffer irreparable harm if injunctive relief does not issue.

16

3. Balance of hardships.

The government argues that VA will be harmed because “VA cannot act contrary to

established authority and award the solicitation to an offeror who is not in the database and [thus

is] ineligible for the award.” Def.’s Mot. at 36. The government proffers circular logic. If Miles

is restored to the VIP database by the court, VA would be obliged fully and fairly to consider

Miles’ apparent low bid in response to the Solicitation, as well as any other bids it submits in

response to other solicitations while in the database. Given the severity of the irreparable harm

Miles will suffer in the absence of relief and the government’s failure to demonstrate harm, the

court finds that the balance of hardships weighs in favor of granting a permanent injunction.

4. Public interest.

The public has a strong interest in preserving the integrity of the procurement process.

Bona Fide Conglomerate, Inc. v. United States, 96 Fed. Cl. 233, 242-43 (2010); SAI Indus. Corp.

v. United States, 60 Fed. Cl. 731, 747 (2004). By ensuring that plaintiff has an opportunity to

compete fairly in SDVOSB set-aside procurements, this public interest will be served.

CONCLUSION

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

GRANTED IN PART, and the government’s motion to dismiss or, in the alternative, cross-

motion for judgment on the administrative record is DENIED. OSDBU’s decision dated August

27, 2012, rendering Miles ineligible for awards of contracts as a SDVOSB, is set aside. VA shall

restore Miles to its roster of approved SDVOSB entities and consider Miles’ apparent low bid in

response to the Solicitation. 16 Miles’ verified eligibility to participate in VA’s Veterans First

Contracting Program shall be extended by 164 days, to August 16, 2013, to take account of the

days it was wrongfully removed from eligibility. 17 The clerk shall enter judgment in accord with

this disposition.

16

The court declines to issue an injunction directing an award of a contract to Miles under

the Solicitation.

17

The court additionally has pending before it a motion by Miles to supplement the

administrative record with documents and records used by VA’s Office of General Counsel in

preparing OSDBU’s decision for the Executive Director’s signature. See Pl.’s Mot. to

Supplement the Admin. Record at 3-4, ECF No. 25. The government resists this motion on the

ground that these materials have been omitted from the administrative record on the basis of

attorney-client privilege and the protection provided by the work product doctrine. See Def.’s

Resp. to Pl.’s Mot. to Supplement the Admin. Record at 3-4, ECF No. 28.

Also pending is Plaintiff’s Second Mot. to Supplement the Admin. Record, ECF No.

27, seeking to add documents related to the issuance and distribution of the VAB posted on VA’s

website and Miles’s effort to revise its operating agreement after OSDBU had issued its decision.

The government resists this motion on the ground that the documents are “irrelevant” and “had

nothing to do with the agency’s decisionmaking in this case.” Def.’s Resp. to Pl.’s Second Mot.

to Supplement the Admin. Record at 1, ECF No. 32.

17

No costs.

It is so ORDERED.

s/ Charles F. Lettow

Charles F. Lettow

Judge

The court addressed a portion of Miles’s first motion when it granted an unopposed

motion by the government to amend and correct the administrative record by including certain

documents that, among other things, provide a “timeline” for OSDBU’s action. See Order of

Oct. 18, 2012, ECF No. 24. In other respects, Miles’s motions are DENIED. The VABs issued

by VA are public documents and thus are available to the court, and the government has

consistently averred that the VAB entitled “Transfer Restrictions” had no bearing on OSDBU’s

decision.

18