Several months ago, we told you about Ambuild Company v. LLC v. U.S., a very important case pending before the Court of Federal Claims (“COFC”). The AmBuild case was of particular interest to our firm because it concerned the interpretation of a Department of Veterans’ Affairs (“VA”) regulation, which the VA revised following an adverse ruling in our case, Miles Construction, LLC v. United States. AmBuild was of particular interest to SDVOSBs because of its potential impact on their due process rights in the context of status protests.
Well, the COFC issued its opinion. The decision is a major victory for veteran-owned businesses, wherein the Court rejects the VA’s attempt to circumvent the ruling in Miles, and reaffirms that the VA cannot cancel a concern’s SDVOSB status without first allowing it an opportunity to respond to potential eligibility issues.
As those of you that follow this blog know, Miles involved the cancellation of our client’s SDVOSB status. The cancellation stemmed from a protest lodged by a competitor. However, the VA’s basis for cancellation was something that was never raised in that competitor’s protest. Rather, the cancellation was based upon a new issue that the VA brought up on its own when deciding the protest, which Miles knew nothing about prior to cancellation. When Miles protested the cancelation of its status, the COFC found that the VA had violated Miles’ due process rights. The Court reasoned that an agency performing an investigatory function must provide the investigated party with notice, and afford that party an opportunity to meaningfully participate in the investigation. The Court said: “an interpretation of 48 C.F.R. § 819.307(c) [the regulation pertaining to SDVOSB/VOSB eligibility protests] that does not allow this basic procedural due process is plainly erroneous and cannot be upheld.”
Following the Miles decision, the VA revised its regulations. The amended version of 48 C.F.R. § 819.307 (which went into effect on September 30, 2013) added language that gave the VA the ability to determine the status of a protested concern based upon “a totality of the circumstances.” (48 C.F.R. 819.307(e)). In AmBuild, the VA relied on this language, arguing that it allowed the VA to consider facts or issues not specifically raised by the protesting party when reviewing a concern’s SDVOSB status. In effect, the VA argued that “totality of the circumstances” meant that it could review any potential issue affecting a concern’s eligibility under the SDVOSB Program, whether or not it was raised as part of a protest.
In the AmBuild decision, the COFC squarely rejected the VA’s argument. The Court again emphasized the importance of a protested party’s due process rights, and the necessity of giving a protested party a chance to respond to any allegations affecting its status. It stated that: “The requirements of due process rest at the core of our nation’s Constitution and governmental institutions and are ingrained in our national traditions. . .” As a result, “[b]efore adverse action is to be taken by an agency, the individual immediately concerned should be apprised not only of the contemplated action with sufficient precision to permit his preparation to resist, but, before final action, he should be apprised of the evidence and contentions brought forward against him so that he may meet them.” Accordingly, the Court reasoned that the VA’s “strained construction” of 48 C.F.R. § 819.307 “would convert [the VA’s] scope of review into a general license to act on a protest without giving notice of issues not raised by the protesting party or contracting officer but rather generated sua sponte by [the VA]. The requirements of procedural due process cannot be so easily cast aside.” The Court concluded that the 2013 amendment to 48 C.F.R. § 819.307 may be interpreted to establish a scope of review only – not to abrogate the requirements of procedural due process. Thus, going forward, the “totality of the circumstances” language in 48 C.F.R. § 819.307(e) must be read to include only those issues to which the protested party was afforded an opportunity to respond. That is, the VA may consider the totality of the information available relating to a protested concern’s eligibility for the SDVOSB Program, but only within the context of the issues raised in the protest itself. The Court ruled that AmBuild was entitled to reinstatement to the VetBiz database, that it must be considered for the award of the contract at issue in the protest, and that AmBuild was entitled to its costs of suit.
This is a major victory for VOSB/SDVOSBs. AmBuild reaffirms that the VA cannot cancel a concern’s VOSB/SDVOSB status without explicitly notifying that concern of any and all potential issues concerning its eligibility status, giving that concern an opportunity to provide a meaningful response, and allowing that concern to participate in the investigatory process. It will be interesting to see if the VA attempts to amend its regulations again to circumvent the ramifications of this decision.
Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.