In Department of Veterans Affairs Procurements, Veteran-Owned Businesses Trump All Other Contractors

Merle M. DeLancey Jr.

On October 17, 2018, the Federal Circuit ruled that the Department of Veteran Affairs (“VA”) must give priority to veteran-owned small businesses (“VOSB”) when awarding contracts. PDS Consultants Inc. v. U.S., et al., Nos. 17-2379 and 17-2512, 2018 WL 5019735 (Fed. Cir. Oct. 17, 2018). At first blush, no one would argue with the foregoing statement. But, this mandate became less clear when the VA was faced with awarding a contract to a VOSB or following an otherwise mandatory requirement for all federal agencies to buy a specific list of items made by nonprofits employing the blind and significantly disabled.

Here is the source of confusion. More than 40 years ago, Congress enacted the Javits-Wagner-O’Day Act (“JWOD”), which required federal agencies to buy certain items and services from nonprofits that employ the blind or people with other significant disabilities. Today, this mandatory procurement policy is implemented through the AbilityOne program. In 2006, Congress passed the Veterans Benefits, Health Care, and Information Technology Act (“VBA”). As the U.S. Supreme Court stated in Kingdomware, the VBA made it mandatory in almost every procurement for the VA to follow the “Rule of Two.” The “Rule of Two” requires the VA to award a contract to a VOSB whenever at least two VOSBs can perform the work at a reasonable price.

In reaching its decision, the Federal Circuit relied on two basic rules of statutory interpretation. The first tenet is that a specific statute takes preference over a more general one. Based upon this tenet, the court found that the VBA trumped the JWOD. First, the VBA plainly states that its contracting preference for VOSBs takes priority over “any other provision of law.” Second, while “the JWOD applies to all agencies of the federal government, the VBA applies only to VA procurements and only when the Rule of Two is satisfied.” As a result, the court found that the VBA’s express and specific mandates “override the more general contracting requirements of the JWOD.”

The second statutory interpretation rule on which the court relied provides that, as between two statutes, the more recent statute takes preference over later-enacted statute. Thus, the 2006 VBA again trumped the 1971-enacted JWOD. The court also noted that Congress knows how to create exceptions to statutes and had done so for the AbilityOne program in a prior, similar statute. Here, however, Congress did not carve out an exception for the AbilityOne program from application of the VBA.

While this issue rarely came up, when it did, advocacy for VOSB and AbilityOne contractors was impassioned and vehement. Most contracting officers did not know which contractors took priority, which made things even murkier for prime contractors seeking guidance. The Federal Circuit has cleared up any confusion.