Service-Disabled Veteran-Owned Small Business Wins Bid Protest When Agency Improperly Challenged Its Status: Ask the Bid Protest Attorney

Miles Construction is a service-disabled veteran-owned small business (“SDVOSB”).  As such, it enjoys priority when bidding on some federal government contracts.  It bid on a contract for the repair of a storm sewer at the Coatesville, Pennsylvania VA Medical Center that was set aside for SDVOSB entities, and it was the apparent low bidder.

However, another contractor, VeteranConstruction & Utility Services, Inc. (“Veteran”), challenged Miles’ eligibility as a SDVOSB and lodged a protest with the Solicitation’s contracting officer.  In the protest letter, Veteran alleged a “[c]ontrol and ownership violation” because it believed Miles and a non-SDVOSB had common ownership and control, thus rendering Miles ineligible for SDVOSB status. Veteran alleged that an unqualified person was using the service-disabled veteran status of Miles’ owner, Mr. Slizofski, as a “pass thru” from Miles to him.

The agency agreed that Miles was not properly classified as a SDVOSB.  Miles filed a pre-award bid protest.

The government argued that Miles was not “unconditionally owned” by a service-disabled veteran because the company’s operating agreement had a “first right of refusal” clause in it.  Interpreting the relevant regulation, 38 C.F.R. § 74.3, the Court found that the word “unconditional” did not have the dictionary definition and, in this context, a right of first refusal did not necessarily burden either party with unperformed obligations that would constitute a material breach if not performed. (Caution: different regulations define this term differently).   The Court agreed with Miles that it was a SDVOSB under this definition.

Miles had argued the agency improperly considered challenges that were not raised by its competitor, Veteran.  The Court held that an agency can certainly look beyond the four corners of a protest and is not bound by the scope of the protest; however, it also held that the agency needs to give the target contractor simple due process to let it know what it was considering, and to give it the opportunity for it to respond.  The agency wrongly did not give Miles this opportunity according to the Court and needed to do so.

Miles also argued that the agency wrongly re-classified it from a SDVOSB, bypassing the notice, response, waiting period, and appeal rights of such re-classifications per § 74.22.  However, on this argument, the Court disagreed and held that this was a valid “informal agency adjudication” under 5 U.S.C. § 555(b).

The Court found for Miles, sustaining its bid protest.