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PDS Consultants, Inc. v. United States

United States Court of Appeals, Federal Circuit

October 17, 2018

PDS CONSULTANTS, INC., Plaintiff-Appellee
v.
UNITED STATES, WINSTON-SALEM INDUSTRIES FOR THE BLIND Defendants-Appellants

          Appeals from the United States Court of Federal Claims in No. 1:16-cv-01063-NBF, Senior Judge Nancy B. Firestone.

          David S. Gallacher, Sheppard Mullin Richter & Hampton LLP, Washington, DC, argued for plaintiff-appellee. Also represented by Emily Susan Theriault.

          Corinne Anne Niosi, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellant United States. Also represented by Robert Edward Kirschman, Jr., Douglas K. Mickle, Chad A. Readler.

          Joanne L. Zimolzak, LeClairRyan, Washington, DC, argued for defendant-appellant Winston-Salem Industries For The Blind. Also represented by James K. Kearney, Gary H. Nunes, Joshua L. Rodman, Womble Bond Dickinson (US) LLP, Tysons Corner, VA; Jessica C. Abrahams, Drinker Biddle & Reath LLP, Washington, DC.

          Tracye Winfrey Howard, Wiley Rein LLP, Washington, DC, for amicus curiae National Industries For The Blind. Also represented by Stephen Joseph Obermeier.

          Thomas Saunders, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, for amici curiae Kingdom-ware Technologies, Inc., National Veteran Small Business Coalition, American Legion. Also represented by Edward Henderson Williams, II.

          Craig Holman, Arnold & Porter Kaye Scholer LLP, Washington, DC, for amicus curiae SourceAmerica. Also represented by Nathaniel Edward Castellano.

          David R. Johnson, Vinson & Elkins LLP, Washington, DC, for amicus curiae Goodwill Industries International, Inc.

          Dana B. Pashkoff, Drinker Biddle & Reath LLP, Washington, DC, for amicus curiae National Association for the Employment of People Who Are Blind.

          Raechel Keay Kummer, Morgan, Lewis & Bockius LLP, Washington, DC, for amici curiae Melwood Horticultural Training Center, Inc., Melwood Veterans Services, LLC, Linden Resources, Inc.

          Before Prost, Chief Judge, O'Malley and Stoll, Circuit Judges.

          O'Malley, Circuit Judge.

         This case concerns the relationship between two statutory regimes designed to benefit two historically disadvantaged groups: veterans and disabled persons. The United States and Winston-Salem Industries for the Blind ("Industries for the Blind") (together, "Appellants") appeal from a decision of the U.S. Court of Federal Claims ("Claims Court") holding that section 502 of the Veterans Benefits, Health Care, and Information Technology Act of 2006, Pub. L. No. 109-461, 120 Stat. 3403, 3431-35 (2006) ("VBA"), requires the Department of Veterans Affairs ("VA") to consider awarding contracts for prescription eyewear based on competition restricted to veteran-owned small business-i.e., to undertake a "Rule of Two" analysis-before procuring such eyewear from any other source, including a nonprofit agency for the blind or significantly disabled, designated as such under the Javits-Wagner-O'Day Act ("JWOD"), 41 U.S.C. § 8504. See PDS Consultants, Inc. v. United States, 132 Fed.Cl. 117 (2017). For the reasons that follow, we affirm.

         I. Background

         A. Overview of the Federal Procurement Process

         A bevy of statutes and regulations govern the federal procurement process. As explained below, these authorities impose a number of restrictions on executive branch agencies seeking to procure goods and services. At the same time, they permit-or, sometimes, mandate-that preferential treatment be given to certain contractors, including those that are owned by or employ veterans or employ blind or otherwise significantly disabled individuals. This case concerns the relative priority of those mandates for VA procurements.

         1. The Competition in Contracting Act

         In 1984, Congress enacted the modern statutory framework for federal procurement, the Competition in Contracting Act of 1984, Pub. L. No. 98-369, div. B, tit. VII, 98 Stat. 494, 1175, which is codified, as amended, in various sections of titles 10, 31, and 41 of the United States Code. The Competition in Contracting Act generally requires that all executive agencies "obtain full and open competition through the use of competitive procedures" when procuring goods or services. 41 U.S.C. § 3301(a). An agency uses "competitive procedures" when it permits any responsible source to compete for a procurement; it also uses "competitive procedures" when it appropriately restricts competition to "small business concerns." Id. § 152.

         The Competition in Contracting Act expressly exempts agencies from having to use "competitive procedures" for procurements where (1) procurement procedures are "otherwise expressly authorized by statute," id. § 3301(a); or (2) "a statute expressly authorizes or requires that the procurement be made through another executive agency or from a specified source," id. § 3304(a)(5). The parties do not dispute that the JWOD is a statute that expressly requires that certain procurements be made "from a specified source." They dispute, however, whether and to what extent the VBA contains a separate exception from the Competition in Contracting Act's "competitive procedures" requirement, one that applies before resort to the requirements of the JWOD.

         2. The Javits-Wagner-O'Day Act

         The JWOD was enacted in 1938 to provide employment opportunities for the blind, and was amended in 1971 to provide such opportunities for "other severely disabled" individuals. To effectuate these goals, the JWOD established the Committee for Purchase from People Who Are Blind or Severely Disabled ("AbilityOne"), a fifteen-member body appointed by the President that includes one representative from the VA. 41 U.S.C. § 8502.

         One of AbilityOne's primary duties is to create and maintain a procurement list ("List") that identifies products and services produced by nonprofit entities that are operated in the interest of, and employ, individuals who are blind or significantly disabled. Id. § 8503(a). The JWOD generally requires that federal agencies, which on its face would include but not be limited to the VA, purchase products and services on the List from designated nonprofits. Specifically, the JWOD provides that:

An entity of the Federal Government intending to procure a product or service on the procurement list referred to in section 8503 of this title [i.e., the List] shall procure the product or service from a qualified nonprofit agency for the blind or a qualified nonprofit agency for other severely disabled in accordance with regulations of [AbilityOne] and at the price [AbilityOne] establishes if the product or service is available within the period required by the entity.

Id. § 8504(a) (emphasis added). Regulations promulgated under the JWOD mandate that AbilityOne, in deciding what items to place on the List, consider, among other things, the additional service or commodity's potential to generate employment, the nonprofit agency's qualifications and capability to meet Government standards and schedules, and the impact on private contractors. 41 C.F.R. § 51-2.4. AbilityOne can make changes to the List by posting a notice in the Federal Register and following the notice and comment procedures set forth in the Administrative Procedure Act. 41 U.S.C. § 8503(a)(2).

         3. The Small Business Act and Amendments Thereto

         The Competition in Contracting Act permits agencies to restrict competition for some federal contracts. For example, the Small Business Act ("SBA") "requires many federal agencies, including the [VA], to set aside contracts to be awarded to small businesses," and specifically requires that each agency set "'an annual goal that presents, for that agency, the maximum practicable opportunity' for contracting with small businesses, including those 'small business concerns owned and controlled by service-disabled veterans.'" Kingdomware Techs., Inc. v. United States, 136 S.Ct. 1969, 1973 (2016) (quoting 15 U.S.C. § 644(g)(1)(B)). Federal regulations, such as 48 C.F.R. § 19.502-2(b), moreover, "set forth procedures for most agencies to 'set aside' contracts for small businesses." Id.

         Congress, through the SBA, established a goal for all agencies to obtain 23% of the value of contracts from "small business concerns." 15 U.S.C. § 644(g)(1)(A) (2012). Congress then expanded small-business opportunities for veterans by passing section 502 of the Veterans Entrepreneurship and Small Business Development Act of 1999, Pub. L. No. 106-50, 113 Stat. 233, which amended the SBA and established a government-wide contracting goal for agencies to obtain at least 3% of the value of contracts from service-disabled veteran-owned small businesses. Id.

         Congress further amended the SBA by passing the Veterans Benefits Act of 2003, Pub. L. No. 108-183, 117 Stat. 2651. Section 308 of the 2003 Act, as codified, provides that contracting officers "may award contracts on the basis of competition restricted to small business concerns owned and controlled by service-disabled veterans," provided "the contracting officer has a reasonable expectation that not less than 2 small business concerns owned and controlled by service-disabled veterans will submit offers and that the award can be made at a fair market price." 15 U.S.C. § 657f(b). It also provides, however, that such a procurement may not be made from a source on this basis "if the procurement would otherwise be made from a different source under section 4124 or 4125 of title 18 or chapter 85 of title 41," the latter including the JWOD. Id. § 657f(c).[1]

         4. The VBA and the VA's Regulations and Guidance

         Congress enacted the VBA in 2006, seeking to remedy federal agencies' failures to meet these contracting goals.[2]In section 502 of the VBA, Congress required the Secretary of Veterans Affairs to establish specific annual goals for the VA's own contract awards to veteran-owned small business and to service-disabled veteran-owned small businesses. See 38 U.S.C. § 8127(a). Congress also created a preference for awarding contracts restricted to veteran-owned small business, known as the "Rule of Two," which provides:

(d) USE OF RESTRICTED COMPETITION.- Except as provided in subsections (b) and (c), for purposes of meeting the goals under subsection (a), and in accordance with this section, a contracting officer of the [VA] shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.

Id. § 8127(d). Subsections (b) and (c) give contracting officers discretion to award contracts below certain dollar thresholds to veteran-owned small businesses without using competitive procedures (very small contracts) or on a sole-source basis (slightly larger contracts). Id. ยงยง 8127(b) & (c). Unlike the 2003 Act, the VBA contains no express exception for procurements which would "otherwise be made from a ...


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