Government Contracts Monitor

Update: The Court of Federal Claims Overturns the VA OSDBU and Affirms Company’s VOSB Status

July 1, 2013

As previously reported here, the Court of Federal Claims has not been happy with the Department of Veterans Affairs Office of Small and Disadvantaged Business Utilization (“OSDBU”). In January, the Court granted a preliminary injunction to the protestor in KWV, Inc. v. United States, No. 12-882C, re-instating the protestor’s status as a Veteran Owned Small Business (“VOSB”) after the OSDBU had concluded the company was not eligible. Recently, the Court issued a final judgment in that protest affirming its initial decision and issuing a permanent injunction setting aside the OSDBU’s determination. The rationale for the Court’s final decision was identical to its rationale in issuing a preliminary injunction.

The protest was brought by KWV, Inc., a small business majority owned by James Maron, an Army Corps of Engineers veteran who served in the Korean War. KWV won the contract, but the losing bidder filed an agency-level protest challenging KWV’s status as a VOSB by claiming that Mr. Maron did not “control” the company within the meaning of the regulations since he lived in Florida for most of the year but the company was based in Rhode Island.

Prior to the award, the VA’s Center for Veteran’s Enterprises (“CVE”) qualified KWV as a VOSB after conducting a document review, an investigation of the company, and performing a site visit and interviews. After the bid protest, however, the OSDBU conducted its investigation “entirely through review of documents.” The OSDBU did not conduct a site visit, nor did it conduct interviews with Mr. Maron or any other KWV employee. Based solely on Mr. Maron’s split residency, the OSDBU decided that Mr. Maron did not exercise sufficient control over the company, and disqualified KWV from the Veterans First Contracting Program.

KWV moved for a preliminary injunction to set aside the OSDBU’s decision as arbitrary and capricious. To obtain a preliminary injunction, a protestor must prove, among other things, a likelihood of success on the merits. The Court held that the OSDBU’s review, in comparison to the CVE’s review, was “perfunctory.” The Court held that in contrast to the OSDBU’s approach, CVE “addressed a range of considerations bearing on management and control.” The CVE reviewer concluded that Mr. Maron was responsible for overseeing projects, came to the office as needed, and was always in communication with KWV. Accordingly, the Court issued a preliminary injunction setting aside the OSDBU’s decision and re-instating KWV’s status in the Veterans First Contracting Program.

Recently, the Court issued its final judgment on the merits affirming its preliminary injunction decision. This final decision wasn’t surprising given that the Court ordered a preliminary injunction primarily because it found KWV was likely to succeed on the merits. Although the VA continued to litigate the case following the preliminary injunction, it was unable to present any new information to change the Court’s mind. Ultimately, the Court held that the OSDBU’s determination disqualifying KWV was arbitrary and capricious, and not in accordance with the VA’s regulations. The OSDBU’s decision rendering KWV ineligible was permanently set aside, and the VA was ordered to restore KWV as an eligible VOSB in the Veterans First Program. It’s an important decision for contractors trying to obtain special socioeconomic status because it helps establish the level of investigation necessary for determining a contractor’s eligibility.

Brian Stolarz is the attorney responsible for the content of this article.