Superior Optical Labs v. U.S.: Bid Protest Over SDVOSB Eligibility

The case of Superior Optical Labs, Inc. v. United States, decided by the United States Court of Federal Claims in 2022, examined matters related to Service-Disabled Veteran-Owned Small Business (SDVOSB) eligibility and federal procurement. This case focused on the court's findings regarding how business relationships and contractual obligations affected the status of SDVOSBs.

Background of the Case

Superior Optical Labs, Inc. ("Superior") is a company headquartered in Mississippi, specializing in prescription eyeglasses and related services. The business was certified as an SDVOSB in 2018, meeting the requirement of being owned and controlled by a service-disabled veteran. In 2020, Superior was awarded a contract under a VA solicitation for providing eyeglasses and services within the Veterans Integrated Services Network (VISN) 8. Shortly thereafter, PDS Consultants, Inc. ("PDS"), a competitor, filed a protest alleging that Superior did not qualify as an SDVOSB at the time of the award.

PDS’s protest centered on a Services and Supply Agreement ("Agreement") between Superior and Essilor of America, Inc. ("Essilor"), a non-SDVOSB entity. The agreement required Superior to purchase a substantial portion of its products and services from Essilor. PDS argued that these terms gave Essilor undue control over Superior, challenging its SDVOSB eligibility.

Legal Issues

The case raised critical questions regarding SDVOSB eligibility under the Department of Veterans Affairs (VA) procurement regulations:

1. Control and Independence: Whether Superior’s agreement with Essilor gave Essilor control over Superior’s operations, thus compromising its SDVOSB status.
2. Contract Termination: Whether the agreement had been effectively terminated before the contract award date.
3. Procurement Compliance: Whether the VA acted appropriately in awarding the contract to Superior under SDVOSB criteria.

The VA’s Center for Verification and Evaluation (CVE) initially upheld PDS’s protest, finding that the agreement’s terms indicated a lack of independent control by Superior’s service-disabled veteran owner. This decision led to the cancellation of Superior’s contract.

Court’s Analysis and Decision

The United States Court of Federal Claims reviewed the CVE’s decision, focusing on the agreement’s terms and their impact on Superior’s SDVOSB status. The court examined the following findings:

• Control and Independence: The court agreed with the CVE’s assessment that the agreement’s terms, including purchase obligations and provisions requiring Essilor’s approval for significant business decisions, afforded Essilor a degree of control inconsistent with SDVOSB requirements.
• Contract Termination: Superior argued that the agreement had been orally terminated in 2018, prior to the contract award. However, the court found that the agreement required written termination to be effective. As the written termination occurred in October 2020, the agreement was deemed active at the time of the contract award.
• VA’s Procurement Actions: The court upheld the VA’s decision to cancel the contract based on the CVE’s findings. It ruled that the VA acted rationally in relying on the CVE’s determination of Superior’s ineligibility.

The decision in Superior Optical Labs, Inc. v. United States demonstrates that maintaining independent control in SDVOSB operations is essential to comply with federal procurement eligibility requirements, as shown by the court's ruling.

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