Construction Law Insights

Source America v. United States Dep’t of Educ., 368 F. Supp. 3d 974 (E.D. Va. March 15, 2019)

The dispute revolves around the procurement of a contract for services to be performed in The Department of the Army’s (“Army”) dining facilities at Fort Riley, Kansas. The Army contracts for two different types of services in its dining facilities, Full Food Services (“FFS”) and Dining Facility Attendant (“DFA”) services. The Army defines FFS as “a contract that covers those activities that comprise the full operation of an Army dining facility” and DFA services as “those activities required to perform janitorial and custodial duties within dining facilities.” In 2006, the Army awarded the Kansas Department for Children and Families (“Kansas”) a FFS contract pursuant to the Randolph-Sheppard Act (“RSA”). As required by the RSA, Kansas awarded the contract to a blind vendor. In 2011, the Army awarded Kansas a follow-up contract for the provision of FFS that was scheduled to expire in August 2015. Thereafter, the Army determined that it no longer needed a FFS contract because Army soldiers could perform the duties. However, because Army regulations prohibit soldiers from performing DFA services, the Army was required to contract out DFA services.

The Army decided to procure a new contract, effective upon the expiration of Kansas’ contract that covered only DFA services. The Army believed that the contract for DFA services did not constitute the operation of a vending facility, so the Army concluded the new contract would not be subject to the RSA’s preference for blind vendors and the Army sought to procure the contract under the Javits-Wagner-O’Day Act (“JWOD”). Thus, the United States AbilityOne Commission (“Commission”) added the Fort Riley DFA services to the JWOD’s procurement list through publication in the Federal Register in July 2015 and formally designated Lakeview Center, Inc. (“Lakeview”) as the mandatory source of supply, effective February 2016.

In March 2015, the Army informed Kansas that, following the conclusion of its contract, the Army would purchase only DFA services through a new contract that was not subject to the RSA. In May 2015, Kansas filed a request with the Secretary of the Department of Education (“DOE”) for arbitration with the Army. As required by the RSA, the Secretary convened a three-member panel to arbitrate the dispute in October 2016. Kansas also filed a suit in the United States District Court for the District of Kansas and obtained a preliminary injunction preventing the Army from proceeding with the JWOD procurement during the pendency of the arbitration. The Army complied with the injunction and awarded a bridge contract to Kansas. SourceAmerica (a JWOD central nonprofit agency) and Lakeview sought to intervene in the arbitration between Kansas and the Army based on their interests in the DFA contract, but the DOE never responded and the arbitration panel would not let them testify at the arbitration despite the Army previously representing to the arbitration panel that it intended to call them to testify. Following the hearing, the Army filed a request for a new hearing. On May 9, 2017, the two-member majority denied the Army’s request for a new hearing and held that: (i) the Ft. Riley DFA contract was subject to the RSA’s preference; (ii) the Army violated the RSA when it failed to apply the RSA’s preference to the Ft. Riley DFA contract; (iii) the Army violated the RSA review requirement when it included services formerly performed by an RSA vendor in a new contract that would not be performed by an RSA vendor; and (iv) the Army violated the JWNDA No-Poaching Provision when it worked with the Commission to place services formerly performed by the RSA vendor on the JWOD’s procurement list. Following the arbitration panel’s decision, SourceAmerica and Lakeview filed this action challenging the arbitration panel’s decision. Kansas intervened and all parties moved for summary judgment.

First, the Court found that SourceAmerica and Lakeview had standing. An RSA decision is subject to appeal and review as a final agency action, the Administrative Procedure Act (“APA”) provides the standard for review, and the APA provides that courts must hold unlawful and set aside agency action, findings, and conclusions, that are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law or are in excess of statutory justification, authority, or limitations, or short of statutory right. The APA provides that a person suffering a legal wrong because of an agency action, or adversely affected or aggrieved by agency action is entitled to judicial review. The Supreme Court has interpreted this as authorizing those who are injured by the agency action to seek judicial review of that action where the interest sought to be protected by the complainant is arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question. The RSA’s procurement provisions are intended to provide blind persons with employment and opportunities. The core mission of SourceAmerica and Lakeview is to provide employment opportunities to individuals with disabilities, including the blind. Thus the interests of Source America and Lakeview are within the zone of interest protected or regulated by the RSA. Furthermore, the Court concluded that the RSA did not preclude judicial review. Finally, a bid protest action is not an adequate remedy that precludes judicial review pursuant to the APA because Lakeview has already suffered harm (i.e. the denial of a contract that it was otherwise entitled to receive) and there is no guarantee that it will be able to seek redress for that harm through a bid protest action.

Next, the Court held that the arbitration panel erred in concluding that the RSA’s preference applies to the Ft. Riley DFA contract. The RSA’s preference only applies to contracts for the operation of vending facilities as a whole and the DFA contract is for less than the operation of a vending facility. Because “operation” requires control or management of the vending facilities, the vendor must exercise control or management over the functioning of the vending facility as a whole, not merely exercise of control or management over tasks performed in support of the facility’s functioning. Thus, the arbitration panel’s interpretation of the scope of the RSA’s preference is contrary to the statutory text and finds no support in the regulation on which the panel claimed it relied.

Next, the Court upheld the arbitration panel’s finding that the Army failed to comply with the RSA’s review requirement, which obligated the Army to justify in writing its decision to terminate the operations of vending facilities at Ft. Riley by vendors to the Secretary.

Next, the Court set aside the arbitration panel’s finding that the Army violated the JWNDA No-Poaching Provision when it worked with the Commission to place services formerly performed by an RSA vendor on the JWOD’s procurement list. The JWNDA No-Poaching Provision clarifies that services supporting the operation of military dining facilities that were on the JWOD’s procurement list when the JWNDA was enacted are not subject to the RSA, but it does not invite the inference that all such services not on the JWOD’s procurement list at the time are covered by the RSA. Because the JWNDA neither expanded the scope of the RSA’s preference nor revealed the property interpretation of the RSA, the arbitration panel erred when it found that the Army violated the JWNDA No-Poaching Provision when it worked with the Commission to put the Ft. Riley DFA services on the procurement list.

Next, the Court held that the arbitration panel violated 5 U.S.C. § 555(b) when it refused to allow SourceAmerica and Lakeview to participate in the proceeding without articulating why the orderly conduct of public business did not permit their participation. Section 555(b) provides that so far as the orderly conduct of public business permits, an interested person may appear before an agency or its responsible employees for the presentation, adjustment, or determination of an issue, request or controversy in a proceeding. SourceAmerica and Lakeview were interested parties.

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