“Educating the Government Contracting Community”

CVE Wrong for All the Right Reasons on SDVOSB Protest

With daily reports of indictments and guilty pleas of individuals and companies that have improperly obtained federal government contracts that were set aside for Service-Disabled Veteran-Owned Small Businesses (SDVOSBs"), giving the VA's Center for Verification and Evaluation ("CVE") and its Executive Director of its Office of Small and Disadvantaged Business Utilization ("OSDBU") authority to hear and decide protests that challenged the SDVOSB status of awardees of SDVOSB set-aside contracts seemed to make sense. The CVE is arguably most knowledgeable and experienced in those types of agency-level protests. Perhaps by having the "experts" deciding the protests the VA could nip some of the fraudulent activity in the bud that the Department of Justice and the Office of the Inspector General pursues only years AFTER contracts are awarded. Since November 2013, when CVE began deciding SDVOSB status protests, CVE has been been finding its way by trial and error. And recently it got another lesson courtesy of the United States Court of Federal Claims in how NOT to conduct an SDVOSB protest and appeal.

AmBuild Company LLC, a verified SDVOSB, had its apparent award of a contract to renovate revolving doors at the Veterans Affairs Medical Center in Syracuse, NY protested on the grounds that AmBuild was not actually owned and controlled by a Service-Disabled Veteran. The protest contended that AmBuild had affiliation with and received financial assistance from another construction company. CVE investigated those protest grounds and found they lacked merit. But then, CVE initiated investigation into an additional issue regarding AmBuild's ownership that the protest had not raised. CVE found that the "Involuntary Withdrawal" Clause of AmBuild's 2011 Operating Agreement undermined the unconditional nature of the Service-Disabled Veteran's ownership of AmBuild. CVE issued a Final Determination sustaining the protest based on its finding. And as a result, AmBuild was decertified as an SDVOSB and declared ineligible to receive the award of the contract. CVE never bothered even to tell AmBuild that it was looking at its 2011 Operating Agreement. AmBuild first learned about CVE's investigation when it read CVE's Final Determination which led to it being stripped of its contract award and its SDVOSB certification.

AmBuild appealed pursuant to VAAR 819.307 to the VA's Executive Director of OSDBU. Its appeal focused on that fact that the CVE considered an issue outside of the protest but also that the 2011 Operating Agreement the CVE reviewed had been superseded by its 2014 Operating Agreement. The Executive Director agreed and found that the CVE had considered an issue not raised in the protest and based its findings on an out-of-date version of AmBuild's Operating Agreement. But instead of granting AmBuild's appeal, reinstating their SDVOSB status and re-awarding them the contract, the Executive Director conducted ANOTHER INVESTIGATION into an undisclosed and unprotested issue. The Executive Director scoured AmBuild's current 2014 Operating Agreement; found its version of the "Involuntary Withdrawal" Clause and on analysis similar to the CVE, the Executive Director denied AmBuild's appeal.

AmBuild protested that decision at the U.S. Court of Federal Claims. The Court held that both the CVE and OSDBU violated AmBuild's procedural due process rights by failing to give AmBuild notice that issues outside of the protest were going to be considered and by failing to provide AmBuild an opportunity to be heard on those issues. The Court rejected the VA's argument that the VAAR's inclusion of the phrase "totality of the circumstances" in describing its allowable scope of review during an SDVOSB protest meant that CVE and OSDBU could conduct their own investigations without providing notice to the company they were investigating.

The Court of Federal Claims has already stated that CVE and OSDBU can consider issues not raised in SDVOSB protests but when they do they have to give proper notice and opportunity to be heard to the company being protested. The VA's zealousness at trying to curb the rampant wrongdoing in SDVOSB set-aside contracting got the better of them in this case and the unfortunate victim was AmBuild -- a company that appeared to have had its house in order. SDVOSB Companies should expect that as the VA gains more time and experience with its protest authority, when "red flags" appear in the protest record or the awardee's supporting documentation, the CVE and OSDBU will not be shy about venturing beyond the four corners of a protest if they suspect an ineligible company may scoop up a set aside contract. So, if you have not done so already have a trusted and trained eye take a fine-toothed comb through your corporate documentation to make sure that you minimize any exposure you have to protests from competitors or overzealous government officials trying to do the right thing but picking the wrong target.

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