The Court of Federal Claims recently overturned a line of Government Accountability Office (“GAO”) decisions relative to the Department of Veterans Affairs’ (“VA”) obligation to set aside certain procurements for participation by veteran-owned small businesses only.

In the bid protest case Kingdomware Technologies, Inc. v. The United States, Kingdomware, a service-disabled veteran-owned small business, sought to compel the VA to comply with the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the “Act”). In part, the Act requires the VA to set aside contracts for veteran-owned small businesses ("VOSBs"), “if the contracting officer has a reasonable expectation that two or more" VOSBs or service-disabled veteran-owned small businesses ("SDVOSBs") will submit offers, "and that the award can be made at a fair and reasonable price that offers best value to the United States.” 38 U.S.C. § 8127(d).

In general, federal agencies may buy supplies directly from the Federal Supply Schedule (“FSS”) rather than hold a publicly-advertised competition. Placing orders under FSS contracts is deemed to satisfy the condition for competition. The GAO, however, had ruled in several decisions, including an earlier protest filed by Kingdomware, that the Act mandated that the VA determine at the outset whether it can set aside each of its procurements for restricted competition among SDVOSBs and VOSBs before making purchases under the FSS. Because GAO decisions are recommendations and not binding on federal agencies (see Centech Grp., Inc. v. United States, 554 F.3d 1029, 1038 n.4 (Fed. Cir. 2009)), the VA elected not to follow the rulings in the prior GAO decisions.

In response, Kingdomware filed a bid protest in the Court of Federal Claims alleging that the VA conducted three procurements in violation of the Act by failing to set aside those procurements for VOSBs or SDVOSBs. The Court was faced with determining whether, under the Act, the VA must first determine if it can conduct its acquisitions using restricted competition among SDVOSBs or VOSBs before deciding to use the FSS.

In ruling that the Act did not mandate that the VA consider SDVOSBs or VOSBs first, the Court focused on the “goal-setting” nature of the Act and its implementing regulations. The Court took an in-depth look at the Act and emphasized language in the legislative history that indicated that contracting officers have tools to meet SDVOSB and VOSB goals – language the Court determined was not indicative of a mandatory requirement to set aside certain contracts. Further, (citing FAR §§ 8.404(a), 8.405-5(a), 19.502-1(b)), the Court noted that “generally, the FSS is exempted from small business set-aside requirements under the FAR” and the legislators must have known that was the case when drafting the Act. Thus, the Court agreed with the VA’s interpretation that it is not required to consider restricting competition to SDVOSBs or VOSBs before it decides to order from the FSS. This ruling could have a large scale impact on veteran-owned businesses.