Legal Meets Practical

On Tuesday, May 31, the Small Business Administration (“SBA”) published a final rule in the Federal Register, amending several of its regulations to implement provisions of the National Defense Authorization Act of 2013, as well as to make changes to its regulations concerning the nonmanufacturer rule, affiliation, and joint ventures. It isn’t the most interesting piece of reading you’ll ever encounter, but given its wide scope, it might be worth checking out to see if and how it affects how your small business.

Here are a few of the highlights:

• Affiliation. The rule clarifies that one firm will be presumed to be “affiliated” with another for purposes of determining size if the concern in question derived 70% or more of its receipts from another concern over the previous three fiscal years (consistent with case law from the SBA’s Office of Hearings and Appeals). This presumption is rebuttable. (13 CFR 121.2013).
• Annual Receipts. The rule further defines the definition of “annual receipts” (as it is used to determine size) (13 CFR 121.104). This has confused contractors and been a contentious issue in size protests.
• Nonmanufacturer Rule. The rule clarifies the nonmanufacturer rule, further stating that the rental of an item qualifies as a “service” and will be treated as such in the application of the nonmanufacturer rule and the limitation on subcontracting (“LOS”). It also notes that the nonmanufacturer rule and the LOS performance requirements do not apply to set-asides with an estimated value between $3,500 and $150,000. (13 CFR 121.406).
• Size Protest Standing. The rule clarifies standing for initiating a size protest or requesting a formal size determination, stating that this includes “any offeror that the contracting officer has not eliminated from consideration for any procurement-related reason, such as non-responsiveness, technical unacceptability, or outside of the competitive range.” The prior language included a double negative, which was confusing even for attorneys. (13 CFR 121.1001).
• Limitations on Subcontracting. It clarifies that a prime contractor may subcontract work to a “similarly-situation” (i.e., in the same socioeconomic category) entity and have that count toward the LOS requirements. Not complying with LOS requirements is an easy way to either be found non-responsive in your offer, or to get into trouble (including such penalties as debarment), so it’s important to remain educated on this topic. (13 CFR 125.6).
• Joint Ventures. It alters the rules for joint ventures, noting that the joint venture will be considered “small” so long as each concern is “small” under the NAICS code assigned to the procurement. It also notes the joint venture’s obligation to comply with the LOS requirements set forth at 13 CFR 125.6 (13 CFR 125.15).

For a detailed account of the originally-proposed rule, the comments received and the SBA’s response/analysis, and the final rule (which goes into effect on June 30, 2016), visit this page. Remember – as a small business contractor, it’s your obligation to stay informed on rule updates!

*Did you find this article informative? If so, sign up for Sarah Schauerte’s legal blog on veteran small business issues at: https://legalmeetspractical.com. Also, if you’re attending the National Veteran Small Business Coalition’s wonderful conference in Norfolk this year (June 20-23), please stop by for my presentations on VetBiz verification and bid protests!

Knowing the rules that apply to you can help your bottom line.

As I begin this blog, I can’t help but think of the words of Ron Swanson of Parks and Recreation:

(to couple in bar)

“Hello. My name is Ron Swanson. In general I try never to speak with people. But I have been drinking this Snake Juice thing, and it is damn good. You should buy it.”

“Yeah, okay. Thanks, man.”

“Son, you should know that my recommendation is essentially a guarantee. Drink this. Now.”

Ron and I have few things in common, as I do not like shooting deer and cannot handle whiskey; also, I cannot grow a mustache. We are, however, similar in our refusal to endorse or recommend anything other than something we can stand behind wholeheartedly.

One thing I can stand behind wholeheartedly is the annual conference hosted by the National Veteran Small Business Coalition (“NVSBC”), a veteran business organization with a mission of transitioning veterans into business owners servicing the federal government. As an attorney who focuses on helping veteran business owners working in federal space, the NVSBC is the one organization with which I’m very active – they’re extremely well-organized, have a tight community of folks who help each other out on procurement issues, offer a boot camp and monthly dinner meeting in the Washington, D.C. area, and are overall a great resource for their members across the country.

Every year, the NVSBC hosts its Veterans Training Symposium, or VETS 16 this year, to bring together veteran-owned businesses who want to learn more about maximizing their federal contracting opportunities. For two years running, the conference has been in Norfolk, Virginia, at the Waterside Marriott. This year, it’s from June 20th through the 23rd at this location.

The NVSBC conference is worth the investment for three main reasons:

• The attendees, the number of which ranges in the several hundreds (at least three hundred), are a very close-knit community. These are folks who know each other, and team with each other and help each other; and interacting with this type of group as opposed to faceless thousands (such as with the VA’s conference), is much more fruitful (especially for teaming opportunities). There are numerous networking opportunities throughout the conference.
• The learning sessions are practical and helpful. This year, there are twelve to pick from, including: what prime contractors expect of subcontractors, pitfalls of VA verification, how to compete in a mid-tier market, when and how to protest, and using social media. This is an opportunity to get free advice from experts. Full disclosure – I am one such expert this year (speaking on bid protests and VA verification).
• As many procurement officials attend, contractors have the opportunity to learn the needs of contracting agencies and how to get in on the opportunities. They also can make valuable connections.

Last year, I recommended this conference to several veteran business owners who attended, and each of them thanked me for the recommendation and highly praised the conference. In other words, I don’t see this entry as a “fluff” piece, but as a continuation of my normal blog – I truly feel that this is information that can help veteran business owners, because this conference is wonderful.

If VETS 16 sounds like something that might be valuable to your business, visit the website to learn more. As a tip, I believe this conference is the best fit for small businesses seeking to learn more about federal procurement, growth opportunities, and how to leverage veteran status.

I hope to see you at VETS 16 in Norfolk!

*Did you find this article informative? If so, sign up for Sarah Schauerte’s legal blog on veteran business issues at: https://legalmeetspractical.com.

Ron Swanson approves this message.

Last year, the U.S. Department of Veterans Affairs Office of Inspector General (“OIG”) conducted spot checks (i.e., an audit) at 10 veterans benefits offices around the country to make sure that VA staff members were following Veterans Benefits Administration’s (“VBA”) policies on the management of veterans’ and other governmental paper records.

The OIG came to a disturbing conclusion, finally publicly released ten months after the audit: the VA has been systemically shredding documents related to veterans’ claims – some potentially affecting their benefits. This conclusion is documented in an April report (the “Report”).

The VA Office of Inspector General conducted the surprise audit at 10 regional offices on July 20, 2015, after an investigation into inappropriate shredding in Los Angeles found that staff there was destroying veterans’ mail related to claims.

Investigators arrived unannounced at regional offices and sifted through 438,000 documents awaiting destruction as of 11 a.m. Of 155 claims-related documents, 69 were found to have been incorrectly placed in shred bins at six of the regional offices: Atlanta, Chicago, Houston, New Orleans, Philadelphia and Reno, Nev. There were none at Baltimore, Oakland, San Juan and St. Petersburg, Fla.

Investigators determined that two of the 69 documents affected benefits directly, nine had the potential to affect benefits and the rest would not affect benefits but were required to be in the claims folders before destruction and were not there.

It was enough, the report said, to conclude that not only were the problems systemic, the impact could be serious.

“The potential effect should not be minimized,” the Report concluded. “Considering that there are 56 [VA regional offices], and if weekly shredding is conducted, it is highly likely that claims-related documents at other VAROs are being improperly scheduled for destruction that could result in loss of claims and evidence, incorrect decisions and delays in claims processing.”

In the Report, the OIG determined that the errors in destroying claims documents in general stemmed from a lack of understanding of the Veteran’s Benefits Administration policy on managing paper records. The OIG recommended that the Acting Under Secretary for Benefits Danny Pummill revise the policy to ensure claims documents are clearly identified, and develop/implement detailed and standardized procedures for records management staff to review documents. It also called for safeguards to ensure that the documents get the mandated levels of review, that employees comply with the policy, and that supervisors conduct periodic reviews of the claims-related documents slated for shredding.

In its response, the Veteran’s Benefits Administration concurred with the recommendations and agreed to revise the policy and also realign staff responsibilities to “ensure procedures are in place to track all shredding violations identified.”

But it denied that the findings indicated a systemic issue. “VBA knows that every veteran’s record is important and regrets these human errors,” the response said. “However we disagree that a fraction of a percentage error rate is indicative of a systemic issue.”

What do you think? Are these findings an anomaly, or do they reflect a systemic issue? (As a note, I’ve blogged on this before, so this isn’t a new issue). I do find it interesting that the VA denies this is a systematic issue, while its OIG waited nearly a year after the audit to publicize the findings. If it didn’t need to hide a systematic issue, why not be transparent?

Also, if you’re a veteran who has waited five years to have your claim decided, and then receive a denial that fails to account for an important medical decision that would have granted your claim, does that distinction matter to you?

Access the OIG’s Report here. Also, if you found this article informative, sign up for Sarah Schauerte’s legal blog on veteran’s issues at: https://legalmeetspractical.com.

As an employer, if one of your workers was convicted of armed robbery, would you feel comfortable keeping them on your payroll? Here’s your access to our electronic system, and office key. . . .  Probably not, but hey – you’re not the U.S. Department of Veterans Affairs (VA). You have standards. Also, to be fair, you’re not constrained by laws in place to protect an employee who happens to hit up a liquor store.

During a House committee hearing last week, current VA Health Under Secretary David Shulkin was challenged to explain why the VA continues to employ an individual charged with armed robbery at the VA Caribbean Healthcare System in Puerto Rico, in the social work department. First, Mr. Shulkin denied that the individual was still employed, but he changed his tune after some not-so-gentle prodding.

Despite missing a good deal of work because she was – er, required elsewhere – Ms. Robber still pulls a paycheck from the VA. And she’s not alone in her situation. A host of other VA employees at the same facility have been involved in serious crimes, including a convicted sex offender, and the hospital director, who was charged in 2014 with driving under the influence and possession of a controlled substance. Clearly, to protect its integrity and to maintain consistency, the VA did not want to treat Ms. Robber any differently. (In fact, her being “treated differently” from these other offenders was the winning argument in the hearing that resulted in her being reinstated). As such, we will continue to pay her salary with our tax dollars.

The VA told Congress – with a straight face – that how an employee entertains herself when she is off the clock is none of our business — even if it is blatantly illegal behavior endangering herself and others.

Even if we were to accept this argument, the fact of the matter is that when you are being tried for a crime, this takes a good deal of your time. Weeks, perhaps months. Maybe the employee was incarcerated and unable to show up for work for weeks at a time. That’s okay – the VA still held her job for her, while others working in her department were likely required to pick up the slack. They also compensated her with back pay.

And when she came back? Would you feel comfortable working with someone convicted of armed robbery, immediately after the conviction? (In this case, the employee entered a guilty plea for participating in the gunpoint robbery of a couple enjoying an evening stroll).

While the VA should be bashed for its decision to keep Ms. Robber on the payroll, the fact of the matter is that it is almost impossible to fire a federal employee. If the VA is not permitted to fire an employee due to constitutional protections in place, and it does it anyway, those pillars of our society can sue for their jobs back before the Merit Systems Protection Board (remember Diana Rubens and Kimberly Graves?). And receive them, with back pay. This is not the case with private employers – so long as a contract doesn’t provide otherwise, and the employer is not discriminating in any way, the employer can fire an employee for something as simple as the employee not being a “good fit.”

When will it end? Last summer, the House passed the VA Accountability Act, but due to constitutional issues, it’s not likely to get past the President. Is there anything that can (or will) be done to stop the VA’s continued downward spiral?

*Did you find this article informative? If so, sign up for Sarah Schauerte’s legal blog on veteran and small business issues at: https://legalmeetspractical.com.

A Proposed Rule published by the Government Accountability Office (“GAO”) in the Federal Register on April 15 contains one provision federal contractors will want to comment on:

Do you want to pay $350 to file a bid protest?

In the Proposed Rule, the GAO anticipates that it will establish an electronic system known as the Electronic Protest Docketing System, or EPDS. The EDPS will be the sole means for filing a bid protest at GAO (with the exception of protests containing classified information), and will enable parties to a bid protest and the GAO to file and receive documents. Protesters will have to pay a filing fee, which is anticipated at $350, and is based on “actual costs the GAO has incurred to develop [the EPDS], estimates of future costs,” and so on.

We all know that being a federal government contractor comes with additional costs not encountered in the private sphere – costs due to delays and extra work required, costs when a contract is terminated for convenience, costs to hire a professional to comply with federal laws and regulations. . .

These costs are somewhat offset by “perks” –  free services available to contractors such as registration in federal databases including as SAM.gov and VetBiz, and access to certain resources.

Perhaps the biggest “perk” is the right to file a bid protest contesting improper award of a federal contract or defects with a solicitation. After all, a great deal of work goes into preparing a proposal for a contract opportunity, and such awards impact a business’ profit margins (or even livelihood). The venue of choice for contractors is often the GAO, which, right now, does not charge to file a bid protest.

I do understand the rationale for the GAO proposing to charge to file a bid protest. It is in fact expensive for the GAO to process such protests; and a fee may also reduce the number of frivolous protests.

I also, however, believe that the benefits are far outweighed by the drawbacks. First of all, why $350? Such a large amount is cost-prohibitive for many small businesses – it is rarely that expensive to file a formal lawsuit in most venues. Second of all, given the costs that contractors must incur due to government- caused issues in the performance of a federal contract, don’t they deserve to have this service provided for free? Third of all, if the government has improperly issued an award or has issued a defective solicitation, why should a contractor (literally) have to pay for the government’s mistake(s)?

Luckily, this is a Proposed Rule, meaning that it is not likely to become an implemented rule any time soon. Not only that, but it will take years for the EPDS system to become functional. Still, as a contractor, if you have an opinion on the imposition of this fee, make sure you submit your comment on or before May 16, 2016. (Comments may be submitted by email at [email protected] to the attention of Jonathan L. Kang). The complete Proposed Rule may be accessed here.

*Did you find this article informative? If so, sign up for Sarah Schauerte’s legal blog on small business issues at: https://legalmeetspractical.com.

GAO Proposed Rule Affects Contractors’ Bottom Line

We’re all busy. We all multi-task, we all feel buried under emails sometimes, we all work to make sure we don’t drop the ball on something that needs to get done.

That’s why a recent SBA Office of Hearings and Appeals (“OHA”) decision hits so close to home: this could have been us. Take this lesson, and let it scare you enough that you don’t find yourself in the same situation.

When you’re a small business and you win a set-aside contract, a disappointed competitor might file a size protest with the SBA arguing that you aren’t, actually, “small” under the meaning of the SBA’s regulations. If that happens, you have the pleasure of responding to a detailed request for information from your SBA Area Office. If you respond and the SBA Area Office is happy with your response, great. If you respond and it does not make them happy, the SBA Area Office will make a determination that you are “other than small” and take away your award.

The other scenario is if you don’t respond at all. If that happens, the SBA’s general rule is that of “adverse inference” – it will assume that the relevant information would have shown that you are “other than small” (i.e., you lose by default). See Size Appeal of AudioEye, Inc., SBA No. SIZ-5477, at 9-10 (2013); 13 C.F.R. § 121.1008 (d).

In this case, the protestor, Rohmann Services, Inc. (“RSI”) alleged that the awardee, Oxyheal Medical Systems, Inc. (“Oxyheal”) was other than small due to its affiliation with OxyHealth Group, Inc. (“OHGI”). This was based on the facts that: they share a headquarters, they share a parent DUNS number, and they have the same contact person under SAM.gov. Oxyheal Medical Systems, Inc., SBA Size-5707 (2016).

On October 27, 2015, the SBA Area Office notified Oxyheal (via its point of contact listed on SAM.gov) of its investigation into size and requested a response (including documentation) by November 2. On November 3, after receiving no response, the SBA Area Office wrote to the point of contact, advising that the deadline had been missed and that if the corporation did not respond by 3:00 PM that day, the SBA Area Office would presume that Oxyheal was planning not to respond and would apply the adverse inference rule.

Again, Oxyheal did not respond. On November 12, it then received an adverse size determination and attempted to belatedly respond to the information request. By then, however, it was too late, and the SBA refused to consider it or to reverse its determination.

Oxyheal appealed to the SBA OHA, which was unmoved by its argument that the point of contact on SAM.gov was “frantically busy” because she filled three full-time roles due to recent vacancies, and did not have time to read any emails that were not marked “high importance.” Nor did it buy that, when that point of contact failed to respond, the SBA Area Office should have reached out to the alternate points of contact listed on SAM.gov.

The lesson here is clear, but it’s worth repeating: if you win a set-aside contract, keep your eyes peeled for correspondence from the SBA. If it is notice of a size protest and a request for information, failure to respond may strip you of your hard-earned contract.

Not only that, but always, always make sure your information on SAM.gov is current and accurate (especially considering that it does not make you re-enter an email twice when you’re registering, thus permitting mistakes). Open your mail, at least skim your mail – protect yourself! Do not be too busy to keep your award.

The Oxyheal SBA OHA decision may be accessed here.

*Did you find this article informative? If so, sign up for Sarah Schauerte’s legal blog on veteran issues at: https://legalmeetspractical.com.

As an attorney who focuses on helping veteran businesses receive their “verified” status from the U.S. Department of Veterans’ Affairs (“VA”) Center for Verification and Evaluation (“CVE”), I’ve seen thee process change and evolve over the years. It has gotten noticeably better, especially since processes are now in place where a business can withdraw its application and immediately reapply, rather than experience the former unpleasant alternatives.

A Government Accountability Office (“GAO”) Report, which was released in March of 2016, investigated the VA’s progress with improving its verification process. In so doing, the GAO reviewed the VA’s verification procedures and strategic plan, reviewed a generalizable random sample of 96 verification applications, and interviewed various individuals involved with the process.

The verdict? The VA has improved its (relatively new) process, but it has a ways to go. Here are some highlights (and low points):

• Application processing times have decreased by more than 50% since October 2012 (from 85 days to 42 days). This does not include any time the clock is stopped while the CVE is waiting on information from a business owner, so the wait time is longer from a veteran perspective. Also, since firms can submit and withdraw their applications multiple times in order to correct issues, this lengthens the verification process for some firms.
• The CVE has put into place detailed written work instructions for conducting various verification activities, resulting in greater uniformity.
• The CVE has reduced its backlog on site visits, which means that more “high risk” firms are being investigated in a timely fashion.
• The VA has taken steps to improve communication with veterans, such as by reaching out via email and telephone after document requests.
• The readability level on determination letters ranges from a college sophomore to a college senior level, which may present some challenges in comprehension.

The GAO Report notes that in August of 2015, the VA began testing a restructured verification process, where each veteran business owner is assigned a case manager who serves as a point of contract throughout the process and allows veterans to communicate directly with the individual processing their application. The VA claims that this will not only help with communication, but it will save time because under the current four-stage process, eligibility issues are not flagged until later on in the process. The VA plans to fully transition to the new process by September of 2016, and has been consulting with focus groups to tweak its elements.

I, for one, will say that I’m not onboard with the new restructured process. While I think it’s great to only use one point of contact (veterans want to know who they’re dealing with), the main effect of this program I’ve seen is that applications are done piece-mail, ultimately causing some delay and creating more effort on behalf of the veterans. For example, while a phone call to go over eligibility issues is helpful (which is what is also being done), the VA’s next step of sending the veteran an electronic request for this same information is redundant.

In its concluding remarks, the GAO Report found that the VA’s efforts to restructure the verification process, realign organizational structure, and acquire a new case-management system represent significant efforts for CVE’s team of 16 federal employees. However, these efforts lack a detailed operational plan to guide and integrate them with the VA’s strategic objectives. The agency has faced challenges with planning—both strategic and operational—and by putting  plans in place to guide the program’s transformation, the VA could obtain reasonable assurance that these efforts will be properly sequenced, managed to completion, and help it accomplish its longer-term goals.

Access the full report here.

*Did you find this article informative? If so, sign up for Sarah Schauerte’s legal blog on veteran business issues at https://legalmeetspractical.com.

To be perfectly honest, my blog posts depress even me. Over the last few months, there’s been almost nothing positive to cover. It’s all VA scandal this, and VA fraud that.

Accordingly, to set a more positive tone, I’m using this blog in part to make an announcement: my debut middle grade novel, Monsterville: A Lissa Black Production, will hit shelves in September of 2016. It’s Goonies meets Jumanji with monsters, and it was great fun to write.

The point of this announcement is this: even though right now, most news is negative, it’s important to not let that turn toxic. The Department of Veterans Affairs (VA) does do good things sometimes, but if we focus only on the bad and stew about it, no good can come from it. That’s why I try to only focus on constructive “negative” news. It’s also why having a creative outlet helps. If you’re a veterans advocate or veteran, don’t let the bad news bog you down.

As I do still want to cover news items relating to the VA, here is a quick snapshot of items in the news this last week:

• The VA disciplined two judges and proposed action against three staff attorneys at the VA’s Board of Veterans’ Appeals (which hears many appeals of disability compensation claims decisions) after an internal investigation revealed email exchanges that allegedly carried discriminatory remarks (“racist and sexist in tone”). Learn more here.

• An internal watchdog for the VA found patients faced delays accessing care at a suburban Chicago veterans’ hospital, but its report uncovered no evidence supporting a whistleblower’s claim of a scheme to hide the long wait times. Learn more here.

• VA officials are standing by the removal of Albany medical center director Linda Weiss despite an oversight board’s 30-page ruling that terminating her was too severe a punishment. As stated by VA Deputy Director, Sloan Gibson: “In my judgment, a medical center director who fails to proactively address patient safety concerns or fails to be an advocate for vulnerable veteran patients has no place in the VA.” Learn more here.

As for the book, if you want to check it out, it’s on Goodreads. It’s also quasi-educational, as it teaches kids film terms and includes a film glossary. The official site for the book is http://www.lissablackproductions.com, a work in progress where you can take one of many film-related quizzes.

There you have it, folks. Next week, my mission is to find something positive and substantive to blog about! And stay tuned for my quarterly newsletter, which will be coming your way to commemorate spring. Here’s to hoping for a changing season for the VA, as well.

*Did you find this article informative? If so, sign up for Sarah Schauerte’s weekly blog on veterans issues at: https://legalmeetspractical.com.

Monsterville: A Lissa Black Production

As announced via a press release, the U.S. Department of Veterans Affairs (VA) has taken action against two senior officials in Cincinnati following a federal investigation into allegations of wrongdoing at Cincinnati’s VA Medical Center:

• Network Director Jack Hetrick submitted his retirement after VA Deputy Secretary Sloan Gibson proposed his removal as the agency’s highest-ranking VA official in Ohio, Indiana and Michigan. Robert McDivitt was named yesterday as acting director of the regional Veterans Integrated Service Network.
• Dr. Barbara Temeck, the hospital’s acting chief of staff, was reassigned to non-patient-care duties and her medical privileges were summarily suspended by VA Undersecretary for Health, David Schulkin. (Dr. Ralph Panos has replaced her as acting chief of staff). She could also face additional charges.

“We are committed to sustainable accountability,” said Gibson. “We will continue to use VA’s statutory authority to hold employees accountable where warranted by the evidence. That is simply the right thing to do for veterans and taxpayers.”

The VA said Dr. Temeck’s “salary and benefits remain unchanged” by Thursday’s action and Hetrick’s retirement package will not be reduced.

“Once the employee accrues enough years of service to retire, he or she can do so irrespective of any proposed or final removal action, and the calculation remains the same,” said VA Media Relations Director James Hutton.

Mr. Hetrick and Dr. Temeck were at the center of a Scripps News Washington Bureau and WCPO investigation into cost cutting and questionable management practices at the Cincinnati VA. The four-month investigation followed complaints raised by 34 current and former VA employees who had “urgent concerns about the quality care” at the facility. This triggered the federal probes.

Here are some of the Scripps-WPO findings (based on interviews and documents):

• Services to veterans have been reduced, including spine and orthopedic surgeries, along with customized prosthetic services for artificial limbs.
• Dr. Temeck prescribed controlled substances, even though she does not have a valid controlled substances license that would allow her to write prescriptions privately.
• Dr. Temeck cut around-the-clock staffing by emergency airway specialists to save money, resulting in at least one close call involving a patient who could not breathe.
• Dr. Temeck told operating-room staff they were being “too picky” when they reported surgical instruments delivered to operating rooms with blood and bone chips from previous surgeries.
• Dr. Temeck is paid separately as a VA administrator and cardiothoracic surgeon, but whistleblowers say she has never served as the operating surgeon since coming to Cincinnati.

For those of you who have been following the other disciplinary actions (or, should I say, disciplinary attempts) against VA wrongdoers, I believe I share the majority opinion in saying that both of these individuals will likely retire quietly, pension and benefits in hand, rather than face criminal charges or any real accountability. Here’s to hoping the majority is wrong!

*Did you find this article informative? If so, sign up for Sarah Schauerte’s legal blog on veterans issues at https://legalmeetspractical.com. You can also follow her on Twitter at: https://twitter.com/legalmpractical.

**Sarah Schauerte is a veteran’s attorney and advocate whose practice is based near Atlanta, Georgia. She focuses on assisting veteran-owned small businesses thriven the federal marketplace. In addition to her role as an attorney, Sarah is a professional writer whose debut middle grade novel will be published in September of 2016.

Yesterday, the Supreme Court heard the oral argument in a case that has the potential to majorly affect all veteran-owned small businesses (VOSBs) competing on the Federal Supply Schedule (FSS): Kingdomware.

Many veteran business owners are already aware of the Kingdomware case, not just because of its implication for their bottom line but also because it’s been dragging on for almost four years now. Here’s the lowdown on what’s happened so far:

Kingdomware History in Brief

In 2012, the Government Accountability Office sustained a number of protests on the grounds that under the Veterans Benefits, Health Care, and Technology Act (the “Act”), the U.S. Department of Veterans Affairs (VA) must conduct market research to determine whether an FSS solicitation should be issued as an SDVOSB set-aside. (Aldevra, B-406205, March 14, 2012; Kingdomware Technologies, B-406507, May 30, 2012).

On November 29th, 2012, however, the Court of Federal Claims (CoFC) ruled that the Department of Veterans Affairs (VA) acted reasonably in determining that it need not set aside FSS contracts for SDVOSBs.

Judge Firestone, who penned the decision, analyzed the VA’s decision using Chevron deference. (Chevron, U.S.A. v. National Resources Defense Council, 467 U.S. 837 (1984)). Chevron deference is the standard used by a court to determine whether to grant deference to an agency’s interpretation and application of its own statute (a statute created to apply to the agency). This involves a two-part step: 1) determining whether Congress had spoken directly on the issue at hand; and 2) determining whether the VA had assigned a permissible definition/interpretation to the applicable provision.

Judge Firestone found that Congress had not spoken directly to the issue of whether the VA was required to conduct mandatory procurements for SDVOSBs under the “Rule of Two.” Accordingly, Judge Firestone proceeded to the second step of determining whether the VA assigned a permissible definition to the applicable provision. In applying the “substantial deference” afforded to an agency’s application of its own statute, Judge Firestone held that the VA’s interpretation was reasonable. In a lengthy analysis, Judge Firestone pointed to the VA’s consistent application of this interpretation, as well as the fact that this interpretation does not conflict with the rest of the Act or the VA Acquisition Regulation.

Kingdomware appealed this decision, but it was unfortunately upheld in a split decision by a district court. Kingdomware then applied for cert to the Supreme Court (its last hail Mary); and in the summer of 2015, the Supreme Court granted cert. This is a victory itself, as the Supreme Court grants cert in only about 1% of cases.

In November of 2015, it appeared the case might be in jeopardy because the Supreme Court raised the issue of mootness (i.e., was the case moot since the contracts at issue had already been performed?). In briefs mandated by the Court, both parties presented a united front in arguing the situation at hand was likely to repeat itself, which the Court accepted, and the case was set for oral argument on February 22, 2016.

In February of 2016, Judge Antonin Scalia passed away. This meant that for Kingdomware to win, it must obtain a 5-3 decision in its favor. In the event of a tie – 4 to 4 – the lower district court decision must stand (and the VA won that case).

Down to Brass Tacks: The February 22 Hearing

The veteran community is now buzzing about the February 22 hearing before the Supreme Court. While I did not have the opportunity to attend, I have reviewed the transcript now on the Court’s website. Here is the nitty gritty:

• The Justices interrupted Kingdomware’s counsel, Mr. Thomas G. Saunders, early on regarding the issue of whether the issue was moot. After all, the contracts at issue have already been performed. In so doing, they questioned the Rule of Two and whether the requirement to set aside work for SDVOSBs/research whether it should be would slow the procurement process even in times of urgent need. This required Mr. Sanders to provide a clear description of procurement databases and acquisition procedures under the FSS; as we government contractors know, it can be difficult to explain these processes to those unfamiliar with government contracting. The Justices appeared to accept this explanation.
• The Justices raised questions to Kingdomware’s counsel, Mr. Saunders, regarding how the VA determines “fair and reasonable price,” noting the difficulty (and subjectivity) in determining whether an award can be made on this basis. They expressed concern over constant litigation between SDVOSBs and the VA regarding whether a particular procurement could meet this criterion (if set aside for SDVOSBs). They also inquired as to why every procurement wouldn’t be set aside to veterans, under the applicable criteria. Mr. Saunders referred to a “natural cap” – sure, these criteria are there, but in most procurements the Rule of Two won’t be met, but it was unclear whether the Court bought (or understood) his argument.
• The Supreme Court literally let the VA’s counsel, Mr. Zachary Tripp, only get one sentence out before interrupting him to ask why the VA walked away from the “winning position” adopted by the federal district court (which had ruled in favor of the VA), which was that the statutory preference for veteran-owned companies applies only if the VA has not met its SDVOSB or VOSB contracting goals.  When Mr. Tripp tried to take a step back to explain the complicated position, Justice Sotomayer interrupted to say: “No. You didn’t listen to me.”

A decision is expected sometime between now and the end of June. As I understand from folks who attended (and based on the moods and questions of the Justices), the decision will be close. I’ll keep you posted!

The entire transcript of the hearing before the Supreme Court can be accessed here.

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In this fight between the VA and veteran business owners, the VA’s duty to set aside work for veterans is at stake.