The Obama administration is supporting strict limits on the Veterans First contracting preference at the Department of Veterans Affairs.

Veterans groups and the Government Accountability Office contend that the Vets First law gives top priority on all VA contracts to businesses owned by service-disabled veterans and non-disabled veterans. VA argues that the law gives veterans priority only on set-aside contracts.

The Justice Department backed VA’s policy in response to a lawsuit filed in U.S. District Court for Northern California. Justice said the law gives the VA secretary authority to set procurement goals for SDVs and other veteran-owned companies, and gives top priority to those companies on set-asides “for purposes of meeting the goals.”

Justice asked the court for summary judgment in the government’s favor in the suit brought by a California nonprofit, the Service-Disabled Veteran-Owned Small Business Network Inc.

GAO has adopted a contrary view of the law in sustaining three bid protests in the past six months. GAO focused on another part of the law, which says “a contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans.” GAO says that means the Vets First preference applies to all VA contracts without exception. However, GAO decisions are not binding on executive branch agencies.

Justice said GAO’s interpretation could lead to an “absurd result:” The VA secretary has the power to set procurement goals, but those goals would be meaningless if every contract had to be offered to veteran-owned businesses.

GAO rejected Justice’s argument in its latest bid protest decision. It said “the VA now claims blanket discretion to define the scope of procurements to which the statutory mandate applies. We see no basis for this broad discretion.” GAO called the argument “unreasonable, and inconsistent with the statute.”

GAO has also rejected VA’s claim that purchases through GSA schedules are exempt from the Vets First law. VA said it will not abide by the decision.

The latest bid protest was filed by Aldevra, an SDV firm in Portage, MI, which had a previous protest upheld on the same grounds.

Both of Aldevra’s protests involved kitchen equipment that VA bought through reverse auctions. A VA spokeswoman said the department has halted all reverse auctions while it reviews its policy for using them.