Legal Meets Practical

It looks like the heat is under VA employees to prove they aren’t part of the catastrophic problems of one of our Government’s most important agencies. Or is it?

As I blogged previously, after the VA healthcare scandals (Phoenix in particular) received widespread attention, four senior VA employees were proposed for firing. And this wasn’t for mere incompetence – it was for engaging in shenanigans such as steering contracts to a specific contractor and doctoring records. Of those four employees, only one has now been fired, two have retired (presumably with full benefits), and the decision on the fourth has been delayed.

In addition to actions against these senior executives, over 5,000 employees have been proposed for disciplinary action since Secretary Robert (“Bob”) McDonald was confirmed on July 29 of this year.

“We don’t agree with that, we think they should be fired. Period,” said Stewart Hickey, national executive director of AMVETS, a major veterans advocacy group. “For vets to regain trust, some people have to be fired so people see there’s a consequence for their action and that’s part of rebuilding trust.”

Under new laws implemented by Secretary McDonald, any employee proposed for termination has a five-day window to respond to such action. While many veterans advocates (and critics of the VA) complain that VA employees should be fired outright for outrageous or fraudulent actions, the VA would face a class action lawsuit if it chose that route. Government employees have a constitutional property right in their positions, and to remove them from employment without due process would violate such right. This makes it really hard for the VA to “trim the fat,” so to speak (or, more accurately, to “cut off the cancerous moles”).

Accordingly, while working at the VA may be uncomfortable for thousands of VA employees right now, it’s unlikely that anything terrible will happen to them directly. They can thank the U.S. Constitution for that.

All criticisms aside – and this might be the holidays affecting me – I should also mention that the VA is not running rampant with terrible employees. It’s important to point out that there are many VA employees who truly care about its mission. I have personally dealt with individuals working at the Regional Offices who go above and beyond to ensue that veterans receive the benefits they deserve. Many veterans have relayed to me the outstanding care provided at VA medical facilities. The individuals at the Center for Verification and Evaluation recently took an OATH affirming their commitment to their mission towards veteran-owned small businesses. And at the National Veterans Small Business Engagement this year, newly-confirmed Secretary McDonald impressed veterans with his vision and practical approach to the VA’s huge issues. (I have to say I feel optimistic about his appointment).

Who knows what will come in the following months? VA employees might have a constitutional right to their jobs, but for thousands of VA employees, this right is being questioned.

And of course, no one is immune to media scrutiny and public criticism. This might be enough to induce the VA to operate more efficiently. After all, no one likes bad press.

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On Friday, December 12, the Senate passed the National Defense Authorization Act (NDAA) of 2015, sending it to President Obama for signature. The $585 billion bill includes $521.3 in base defense spending and another $64 billion in war funding.

The NDAA contains a number of provisions that affect small business contractors, including:

• Comprehensive Subcontracting Plan Reform (Section 821) – The NDAA includes provisions to increase transparency and accountability in the Test Program for Negotiation of Comprehensive Small Business Subcontracting Plans. This requires prime contractors to report subcontracting plan compliance to the Department of Defense on a semi-annual basis and adds additional penalties for non-compliance, such as downgrading past performance in technical evaluations for subsequent government procurements.

• Reverse Auctions Reform (Section 824) – Within the Department of Defense, this provision limits the use of reverse auctions by banning the use of single-round reverse auctions, single-bid reverse auctions absent price protections, third-party reverse auctions that include inherently governmental functions or private past performance evaluations, and reverse auctions for design-build work. Given that 95 percent of reverse auctions are for contracts of less than $150,000, improper use of this tool has been harming small businesses, limiting competition, and delivering contracts that fail to save the taxpayers money. (This was memorialized in a GAO report, which was released in December of 2013).

• Women-Owned Small Businesses (Section 825) – Permits sole-source contracts for Women-Owned Small Businesses (WOSBs) and Economically-Disadvantaged Women-Owned Small Businesses (EDWOSBs) if there is only one WOSB or EDWOSB who can perform the work and the value of the contract is below $ 4 million, or $6.5 million for manufacturing. This provides WOSBs and EDWOSBs with the same sole-source authority currently available to HUBZone and Service-Disabled Veteran-Owned Small Business firms

For the last 52 years, Congress has not once failed to pass the NDAA that provides funding to our military. And in a bi-partisan vote (89-11), on December 12 Congress made it 53. Now it’s all up to President Obama. Access the bill here.

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By the time all protests are resolved, there might not be anyone left to take the reins of the VA’s Center for Verification and Evaluation (“CVE”).

In late November this year, the VA rescinded its September $39.9 million contract award to Monterey Consultants Inc. (“Monterey”) of Dayton, Ohio. That award, the bulk of which was for processing VetBiz applications, was protested by a disappointed offeror, Loch Harbour Group, Inc. (“Loch Harbour”).

Loch Harbour alleged conflict of interest related to other work Monterey performs for the VA under different contracts, questions about Monterey’s status as a veteran-owned small business, and concerns about how the proposals were evaluated. Its protest was pursued in the U.S. Court of Federal Claims (“CoFC”).

In reaction to the protest, the VA confirmed that it would re-evaluate Loch Harbour’s proposal to determine whether the company qualified for the award. Monterey would no longer be eligible for re-award of the contract, according to the filing. Unhappy with this development, Monterey filed its own suit in the CoFC on December 3. This lawsuit protested the VA’s decision to no longer consider Monterey eligible for the contract, and Monterey asked that the court order a permanent injunction on the VA’s decision to cancel the contract and — for now — stop the VA from taking corrective action. The court denied the latter, meaning that the contract can transition to Loch Harbour on December 26, but it is still considering the merits of Monterey’s protest of the award decision.

Not long after that – less than a week, in fact – the VA* itself filed a size protest with the Small Business Administration (“SBA”), challenging Loch Harbour’s status as a service-disabled veteran-owned small business (“SDVOSB”) and therefore eligible for the set-aside opportunity. This is despite the fact that Loch Harbour was re-verified by the CVE less than ten months ago; and that the VA (as the contracting agency) determined it eligible for the award during the contract evaluation process. Counsel for Loch Harbor, Lee Dougherty of Vienna, Virginia, has been quoted as saying that this is: “a terrible tactical move,” and that “[t]he retaliation taken by the program and contracting officer is absolutely inappropriate and a gross violation.”

A terrible tactical move or not, technically it’s allowed. Under the SBA’s rules on size protests, a contracting officer may initiate a size protest. 13 CFR 121.1001. And unlike size protests lodged by disappointed offerors, which must be filed within five days of receiving a Notice of Unsuccessful Offer, a contracting officer can do it at any time. 121 CFR 121.1004.

So here we are. Monterey is knocked out of line for the award, and Loch Harbour’s eligibility is being questioned by the VA itself. While great that the VA takes the initiative to make sure that the awardee of a large contract – which fulfills such an important mission – is truly eligible, the fact of the matter is that the VA already had months and months to question Loch Harbour’s status. Why now?

One thing’s for certain. The VA’s good at getting flak.

*VA, not CVE. The CVE’s been in the hot seat for a few items lately, but it’s important to notice that the action here all seems to stem from the VA officials responsible for awarding the contract, and not the CVE.

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by Sarah Schauerte

In a landmark case, the U.S. Court of Federal Claims held that the VA’s Center for Verification and Evaluation (“CVE”) denied due process to a Service-Disabled Veteran-Owned Small Business (“SDVOSB”) by revoking its “verified” status without proper notice and also unreasonably interpreted its own rules on unconditional ownership.

For companies that want to do set-aside work with the VA, the CVE is the gatekeeper. The CVE examines applications to the Veterans First Contracting Program, assessing whether a business has shown that it meets the requirements of being both “owned” and “controlled” by a veteran. As you might guess, these terms are very loaded.

In this case, Ambuild Company, LLC v. U.S., an agency-level protest was lodged against Ambuild, an SDVOSB. No. 14-1786 (October 10, 2014). Even though neither the protestor nor the contracting officer raised an issue with whether Ambuild was unconditionally owned by a veteran, the CVE decided to investigate this on its own. The CVE determined that the veteran was not an “unconditional owner” because of an “involuntary withdrawal” provision contained in the company’s operating agreement. Ambuild was never given an opportunity to address this issue before it was de-verified and removed from VetBiz. As such, the CoFC determined that this violated Ambuild’s rights to due process.

This is the part that is cringe-worthy. The provision the CVE found unacceptable required a member to involuntarily withdraw from the company if the member “is adjudged bankrupt or insolvent or there is entered against the [m]ember an order for relief in any bankruptcy or insolvency proceeding.” While the VA claimed that this provision would terminate the veteran’s ownership shares upon the occurrence of any type of personal bankruptcy, the CoFC found that this argument was “inconsistent with federal bankruptcy law.” Regardless of what the operating agreement says, in the event of bankruptcy, the veteran’s ownership interest would go to the bankruptcy estate. Accordingly, the CoFC held that this clause is a standard commercial arrangement that does not run afoul of the SDVOSB “unconditional ownership” requirements.

Upon reading this case, I was surprised the CVE reached this interpretation of the unconditional ownership provision given that in all fifty states, as a matter of law, a member’s interest must revert to the company if certain events occur (such as death or incapacity, and in many cases, bankruptcy). This is not something you can draft around in an operating agreement. It is fairly common for operating agreements to have a provision, in the “transfer” section, that says that a member’s interest shall revert to the company “as a matter of law.” Because this is so common, I took a look at the CVE’s Verification Brief on “unconditional ownership,” and saw that it did not address this situation.

What happened here? Does the CVE not realize what situations are encompassed in “as a matter of law?” Obviously that term means something. Here, poor Ambuild got into trouble because it included additional detail. This makes little sense, as the CVE routinely comes across this “as a matter of law” provision in the operating agreements submitted to it. The examiners should know what “as a matter of law” entails.

This should be a wake-up call for the CVE. Companies are entitled to due process (See 38 CFR 74.22 and 48 CFR 819.307) before their “verified” status is revoked. And the CVE must be reasonable in interpreting its own regulations. In that way, this CoFC decision is similar to a 2012 decision, Miles Construction, which held that a “right of first refusal” transfer restriction is permissible given that it is a standard commercial arrangement.

What do you think? Will this inspire change, or will this be more of an “academic” victory for SDVOSBs?

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