• High Court Rules for Vets
  • July 12, 2016 | Authors: Stanley A. Millan; Adam Stone
  • Law Firms: Jones Walker LLP - New Orleans Office; Jones Walker LLP - Jackson Office
  • In Kingdomware Technologies, Inc. v. United States, --- v. ---, No. 14-916 (June 16, 2016), the Court unanimously ruled that under a 2006 statute (38 U.S.C. §8127(b)), the Department of Veterans Affairs ("VA") was obligated to restrict competition to only veteran-owned small business if there is a reasonable expectation that two or more such businesses will submit fair and reasonable offers of best value to the United States. The Court stated this obligation is notwithstanding the Department having met its annual goals for such restrictive awards. The only exceptions to this obligation are for non-competitive or "sole source" awards below certain dollar thresholds ($150,000).

    The Court discussed the "Rule of Two," stated above, for small business concerns, including service-disabled veteran-owned small businesses ("VOSBs"). The case involved emergency notification services to four VA medical centers. The VA did not set these substantial, multi-year contracts aside but completed them unrestrictively through GSA's Federal Supply Schedule ("FSS"), a sort of government "Amazon-like" program but larger in many cases. After GSA's placement of option FSS contracts, the government can place orders to the vendor-awardee, as in this case (but to a non-veteran owned business). Kingdomware was unsuccessful in its related bid protests before the Government Accountability Office (which ruled, non-bindingly in its favor, but VA disagreed) and the Federal Circuit. The Department had been exceeding its small business goals, and the "Rule of Two" was arguably no longer applicable.

    The Court first held the case was not "moot," even though the short-term (two-year) contracts or orders awarded had been performed, because the challenged action was capable of repetition yet evading reviews. Kingdomware also demonstrated a reasonable likelihood that it would be awarded future contracts if its interpretations prevailed.

    On the merits, the Court ruled that the VA's obligation was mandatory, not discretionary, by the statute's use of the word "shall," not "may"(...a contracting officer of the Department shall award contracts" to VOSBs under the "Rule of Two" [emphasis added]). Although the "Rule of Two" prefatory clause (§8127(d)) stated its "purpose" was to meet annual contracting goals, the Court held that the clause did not vary the statute's mandatory meaning of the "Rule of Two." The Court further held that FSS "orders" were new contracts subject to the "Rule of Two" and did not defer to the VA's contrary interpretation under the Chevron case doctrine's usual deference to agencies' statutory interpretations of ambiguous statutes, because the statute itself here is unambiguous. The Court did not rule on what type of search the VA must undertake, either on the FSS for VOSBs or broader.

    The 8-0 decision penned by Justice Thomas gives more clout to VOSBs' market share of VA direct contracts and through FSS contracts, except for the smallest and the largest contracts. The VA spent $20 billion in contracts in fiscal year 2015, so the ruling could mean hundreds of millions of extra dollars to VOSBs. Large contractors may have to adjust their VA stance or pursue VOSB sub-contractual opportunities before the VA, consistent with U.S. Small Business Administration standards and affiliation and subcontracting rules.