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. If two or more qualified VOSBs can satisfy the VA’s needs, the VA must procure those goods through those VOSBs that are awarded contracts. The VBA also allows contracting officers to grant sole-source contracts to VOSBs under limited circumstances (38 U.S.C. §§ 8127(b)-(c)).

The new VA class deviation revises VAAR 808.002, Priorities for Use of Government Supply Sources, and subpart 808.6, Acquisition from Federal Prison Industries, Inc.—the two provisions that implement for the VA the FAR Part 8 mandatory source priority generally enjoyed by AbilityOne Procurement List and Federal Prison Industries vendors across government procurements. The deviation instructs that the Veterans First priority displaces the AbilityOne priorities for “all VA contracts,” but that “if an award is not made to an eligible . . . VOSB under VAAR subpart 819.70, the priority use of AbilityOne applies and supplies and services on the Procurement List are mandatory sources.” In this respect, the new VA class deviation reconciles the VA’s priorities for veterans and the separate, government-wide priority for AbilityOne nonprofit companies.

The class deviation implements a decision from the U.S. Court of Appeals for the Federal Circuit issued October 17, 2018, affirming the U.S. Court of Federal Claims (“COFC”) bid protest decision in PDS Consultants, Inc. v. United States (discussed here). In that case, service-disabled veteran-owned small business PDS Consultants challenged the VA’s ongoing procurements of eyeglasses from an AbilityOne Procurement List vendor, despite the existence of two or more qualified VOSBs capable of meeting the VA’s requirements. The COFC sustained PDS’s protest in 2017, holding that the VA must first look to VOSBs if the Rule of Two is satisfied. The COFC relied in part on the Supreme Court’s 2016 decision in Kingdomware Technologies, Inc. v. United States, which held that the Veterans First Rule of Two requirement “is mandatory, not discretionary” in all VA procurements. The Federal Circuit’s decision in October 2018 confirmed that this Veterans First priority supersedes the AbilityOne Procurement List, denying rehearing on May 10, 2019.* The VA subsequently issued on May 20, 2019 this class deviation implementing the Federal Circuit decision.

Particularly where AbilityOne vendors have long enjoyed special entitlement in federal procurements, this class deviation is sure to upset the AbilityOne community. Still, the class deviation simply implements a policy that has been evident since the Kingdomware decision in 2016. The VA is now recognizing that Veterans are First in procurement, finally realizing the congressional mandate originally expressed more than a decade ago, when the VBA was originally passed in 2006.

*Sheppard Mullin attorneys represented PDS Consultants in the bid protest before COFC and subsequent appeal before the Federal Circuit.