Background – The VBA and the U.S. Supreme Court's Kingdomware DecisionIn 2006, Congress passed, and President George W. Bush signed into law, the VBA, which requires the VA to set aside procurements for veteran-owned small businesses when the Contracting Officer reasonably believes that there could be two or more small, veteran-owned business that will submit offers (the "Rule of Two"):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 theDepartment shall award contracts on the basis of competition restricted tosmall business concernsowned and controlled by veterans if the contracting officer has a reasonable expectation that two or moresmall business concernsowned 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.38 U.S.C. § 8127(d). The Rule of Two requires the VA to set aside procurements for veteran-owned small businesses (VOSBs) or service-disabled veteran-owned small businesses (SDVOSBs) when market research indicates that two or more such entities would submit offers, assuming the award can be made at a fair and reasonable price.

After a brief summary of the Rule of Two, this post lays out these bright-line rules, and concludes with predictions regarding future VBA Rule of Two protests.The Rule of TwoIn Kingdomware, the Supreme Court interpreted Section 8127(d) of the VBA (38 U.S.C. §§ 8127–8128) to mean that the Rule of Two is mandatory and applies to all VA procurements, including the federal supply schedule procurement at issue in Kingdomware. A VA contracting officer is required to set aside a procurement if she has a “reasonable expectation” that two or more responsible service-disabled veteran-owned small businesses (“SDVOSB”) or veteran-owned small businesses (“VOSB”) are capable of performing the requirements being procured at a fair and reasonable price that offers best value to the government.

The Act provides that, "… a contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans" if the requirements of the Rule of Two can be met. 38 U.S.C. § 8127(d) (emphasis added). Kingdomware argued that based on this unambiguous language, the contracting officer was required to limit competition for the emergency notification services contract to VOSBs.The Department unsuccessfully claimed that it did not need to restrict competition to VOSBs because: (1) it already had met its annual VOSB goal under the Act, and (2) it placed the order through the FSS system.With regard to the first argument, the Department relied on introductory language in the Act, which provides that the Rule of Two is to be used "for the purpose of meeting" the annual goals for contracting with VOSBs.

The SBA is also proposing to implement the Veterans Certification Program under a new 13 Code of Federal Regulations Part 128. Comments on the proposed rule are due to the SBA on or before August 5, 2022.The VO and SDVO small business programs, set forth in 38 US Code 8127, authorize federal contracting officers to restrict competition to eligible VO and SDVO SBCs for VA contracts. To be eligible for VA contracts, VO and SDVO SBCs must be verified by VA’s Center for Verification and Evaluation in accordance with 38 USC 8127.

Notably, the Department of Veterans Affairs (“VA”), under the Veterans First Contracting Program, must set-aside contracts for service-disabled veteran-owned small businesses (“SDVOSBs”) and veteran-owned small businesses (“VOSBs”) regardless of these thresholds. 38 U.S.C. § 8127(d). For acquisitions below $5,000,000, the VA may use non-competitive procedures (i.e., directed sole-source awards) to award to a VOSB or SDVOSB. 38 U.S.C. §§ 8127(c), (d).Turning back to the dollar thresholds for general government purchasing, while these rates were changed more than a year ago (previously $3,500 – $150,000), the impact on small business government contractors remains to be seen.

In its most recent attempt to strike the appropriate balance between the Veterans First and AbilityOne programs, the U.S. Department of Veterans Affairs (“VA”) issued on May 20, 2019 a class deviation to the VA Acquisition Regulations (“VAAR,” 48 C.F.R. Chapter 8), instructing contracting officers to conduct a “Rule of Two” analysis before procuring from the AbilityOne Procurement List.The Rule of Two is set forth in the Veterans Benefits Act of 2006 (“VBA”), 38 U.S.C. § 8127(d), which established the Veterans First program. The Rule of Two requires that VA contracting officers determine whether two or more veteran-owned small businesses (“VOSBs”), including service-disabled veteran-owned small businesses, are capable of meeting the VA’s requirements at reasonable prices.

In its most recent attempt to strike the appropriate balance between the Veterans First and AbilityOne programs, the U.S. Department of Veterans Affairs (“VA”) issued on May 20, 2019 a class deviation to the VA Acquisition Regulations (“VAAR,” 48 C.F.R. Chapter 8), instructing contracting officers to conduct a “Rule of Two” analysis before procuring from the AbilityOne Procurement List.The Rule of Two is set forth in the Veterans Benefits Act of 2006 (“VBA”), 38 U.S.C. § 8127(d), which established the Veterans First program. The Rule of Two requires that VA contracting officers determine whether two or more veteran-owned small businesses (“VOSBs”), including service-disabled veteran-owned small businesses, are capable of meeting the VA’s requirements at reasonable prices.

The U.S. Court of Appeals for the Federal Circuit recently affirmed a May 2017 Court of Federal Claims decision requiring the U.S. Department of Veterans Affairs (“VA”) to give veteran-owned small businesses first priority before purchasing from the AbilityOne Program.In August 2016, PDS Consultants, Inc. (“PDS”), a service-disabled veteran-owned small business that provides eyeglasses and vision-related services to the VA, filed a bid protest challenging the VA’s decision to purchase eyeglasses off of the AbilityOne Procurement List without first conducting a “Rule of Two” analysis under the 2006 Veterans Benefits, Health Care, and Information Technology Act (the “VBA”), 38 U.S.C. §§ 8127-8128 (as implemented through the Veterans First Contracting Program). The VBA Rule of Two (at 38 U.S.C. § 8127(d)) requires the VA to conduct a market analysis of whether there are at least two veteran-owned small businesses that could submit offers for a given acquisition at a fair price.

— 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 Department 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. 38 U.S.C. § 8127(d) (emphasis added). In what appeared – at the time at least – to be a straightforward ruling, and win for veteran-owned businesses, GAO held that neither the VA Act nor the implementing regulations afforded the VA the discretion to conduct a FSS procurement without first applying the Rule of Two to decide whether the acquisition should be set aside.

tes or its outlying areas;”“[n]ot exceed[ing] 500 employees, or 150 employees for information technology value-added resellers” under the relevant NAICS code;“primarily engag[ing] in the retail or wholesale trade and normally sell the type of item being supplied;” and“[t]ak[ing] ownership or possession of the item(s) with its personnel, equipment, or facilities in a manner consistent with industry practice.”On November 14, Marathon submitted a timely quotation. Approximately two weeks later, it filed a pre-award protest with the agency objecting to the RFQ’s inclusion of the non-manufacturer rule. The company argued that it would eliminate small businesses from competing and, therefore, was improper. Quotations were due by December 1.On January 17, 2024, the VA notified Marathon that its agency-level protest has been denied. Less than 10 days later, Marathon filed a protest with the GAO, arguing that the RFQ’s incorporation of the nonmanufacturer rule was improper as it ran counter to 38 U.S.C. 8127, FAR 19.505(c)(5), and the VA’s procurement regulations.DiscussionThe procurement regulations set strict timeliness requirements on the submission of GAO protests in order to strike a balance between providing parties with a fair opportunity to argue their cases and ensuring that the procurement system runs efficiently.The procurement regulations provide: “[i]f a timely agency-level protest was previouslyfiled, any subsequent protest to GAO must befiledwithin 10daysof actual or constructive knowledge of initialadverse agency action.” 4 C.F.R. §§ 21.2(a)(3) (emphasis added). “Adverse agency action” refers to “any action or inaction on the part of a contracting agency that is prejudicial to the position taken in a protest filed with the agency, including the ‘opening of bids or receipt of proposals.’” MLS-Multinational Logistic Servs., B-415782, B-415708.2, Mar. 7, 2018, 2018 CPD ¶ 105.The VA argued that the GAO protest was untimely because the closing date of the quotations, not the de