Can Your SDVOSB Status Survive Death?

The US Court of Federal Claims (COFC) rules that SDVOSB status can survive Veteran owner's death. On November 26, 2013, the US Court of Federal Claims heard an appeal from a the son of a veteran business owner after a contracting officer working for the defendant, the United States Environmental Protection Agency, issued a "determination of non-responsibility," proposed a debarment, and finally canceled the solicitation.

Case History

The case begins with a solicitation that was issued on April 15, 2009, as an SDVOSB set-aside. NEIE submitted a proposal in May 2009 and at that time, the company was wholly owned by a service-disabled Veteran. The contract was eventually awarded to another company, which was subsequently found by the SBA to be "other than small." In June 2011, more than two years after NEIE had submitted its proposal for the SDVOSB set-aside contract, its Veteran owner, James Coleson died and ownership transferred to his son. Finally, on January 18, 2012, the EPA awarded the $118 million dollar contract to NEIE. This, of course, gave rise to a protest from the disappointed bidder, Guardian, which protested amongst other things SDVOSB status, because its veteran owner had died in the nearly three-year wait for the contract to be awarded.

On April 30, 2012, the SBA ruled in NEIE's favor and stated the law that the US Federal Claims Court would adopt, which was that since NEIE was SDVOSB status eligible at the time of the proposal, it remained so through the contract award date. However, it didn't end there. Guardian also filed a protest claiming that NEIE was no longer a "responsible small business contractor" due to the company cutting staff and allegedly failing to alert the government of the Veteran owner's death. The EPA contracting officer issued a determination of non-responsibility on May 25, 2012, citing amongst other things, NEIE's alleged failure to alert the government of Mr. Coleson, the Veteran owner's, death and intentionally trying to mislead the government in order to "secure the possibility of a lucrative Government contract set-aside for a service-disabled veteran-owned small business, NEIE, Inc. knowingly and intentionally misled the Government by failing to advise EPA ... that James Coleson had died.” NEIE v. US. No. 13-164 C (Fed.Cl.Ct 2013). The EPA also proposed debarment for NEIE.

Ultimately, the EPA terminated its proposed debarment but canceled the SDVOSB set-aside contract. NEIE filed its pre-award bid protest with the US Court of Federal Claims on March 5, 2013.

The Court's Ruling

Regarding the issue of non-responsibility, the Court determined the "CO ascribed an implausible” motive for NEIE’s actions, failed to consider new evidence that would tend to contradict the CO’s concerns about NEIE’s integrity, and “offered an explanation for [the] decision that runs counter to the evidence before [the CO]. Ala. Aircraft Indus., 586 F.3d at 1375 (quoting State Farm, 463 U.S. at 43)." ID, page 26. While the Court found that it was "required to uphold an agency decision even if it is less than ideal clarity," it would not uphold “implausible decisions nor supply a reasoned basis for the agency’s action that the agency itself has not given.” State Farm, 463 U.S. at 43 (quoting Secs. & Exch. Comm’n v. Chenery Corp., 332 U.S. 194, 196 (1947)). The Court also ruled that the EPA's "conspiracy theory" regarding NEIE's attempt to hide Mr. Coleson't death was "deeply flawed." Regarding NEIE's SDVOSB status, the Court ruled "NEIE had no reason to mislead the EPA about the death of James Coleson because, as confirmed by the SBA in resolving the Guardian protest, the FAR only requires that a contractor meet the eligibility requirements for an SDVOSB at the time of offer."

The Court further reasoned "NEIE unquestionably was controlled by James Coleson, a service-disabled veteran, at the time of its offer. The CO pointed to no evidence whatsoever suggesting that NEIE made any offers for SDVOSB set-asides after James Coleson’s death and, in fact, the Administrative Record contains evidence to the contrary suggesting that NEIE took proactive steps to ensure compliance with relevant requirements by declining to bid on other SDVOSB set-asides." And "[m]ore importantly, NEIE had no legal duty to disclose the death of James Coleson to the EPA, because his death was immaterial to NEIE’s performance of the SDVOSB Contract. To be a material misrepresentation, NEIE would have had to make a false statement on which the EPA relied ... in selecting [NEIE’s] proposal for the contract award.”

In the end, the Court ruled almost entirely in NEIE's favor, except that it found that it "cannot compel the EPA to award NEIE the SDVOSB Contract. See, CACI, 719 F.2d at 1575 (stating that “a disappointed bidder has ‘no right ... to have the contract awarded to it’” (alteration in original) (quoting Scanwell Labs., Inc. v. Shaffer, 424 F.2d 859, 864. It did find, however, that "the EPA’s February 12, 2013 decision to not proceed to award a contract under the SDVOSB set-aside appears to be completely post-hoc. See Parcel 49C, 31 F.3d at 1151 (holding that “pretextual and incredible” justifications for cancellation of a procurement violates the agency’s “duty to conduct a fair procurement”); 126 Northpoint Plaza, 34 Fed. Cl. at 112 (finding that an agency “is not vested with unfettered discretion to cancel procurements”)." The government represented that it was planning to issue a new solicitation in the first quarter of 2014 and that NEIE's proposal, should it choose to submit one, would be "evaluated without consideration of the prior unlawful, ill-considered, and erroneous factual non-responsibility and proposed debarment made by the Agency in this case." After more than four years, readers can check back, perhaps next summer, to find out if there have been further developments in this complex contract offering.

If you are a Veteran with a business and have a question about your SDVOSB, please contact the experienced attorneys at Veterans Advocacy Law Group via our online contact form.