It is rare for the Supremes to weigh in on Government contracts issues. But on June 16, 2016, the Court did just that. The holding: the Department of Veteran Affairs (“VA”) must use the Rule of Two every time it awards a contract. It does not matter whether the agency already has satisfied its annual minimum contracting goals for veteran-owned small businesses (“VOSB” or “SDVOSB”). It does not matter whether it is placing orders under the GSA Federal Supply Schedule (“FSS”). See Kingdomware Technologies, Inc. v. United States, No. 14-916, 579 U.S. __ (2016). That means that for most procurements, the VA is required to determine whether there is a reasonable expectation that two or more veteran-owned small businesses will bid at a fair and reasonable price. Where there is a reasonable expectation of that, the VA is required to set aside the requirement for VOSBs or SDVOSBs.
While not at issue in Kingdomware, there are two statutory exceptions to this requirement for: 1) certain small contracts under the simplified acquisition threshold; and 2) certain sole source contracts above that level – that still will be awarded to a VOSB and/or SDVOSB. See 38 U.S.C. § 8127(b) and (c).
The decision in Kingdomware is based, in part, on a basic rule of statutory construction: “Unlike the word ‘may,’ which implies discretion, the word ‘shall’ [when used in a statute] usually connotes a requirement.” Id. at *6; see also 38 USC § 8127(d) (statute at issue in Kingdomware).
The VA tried to get around the “shall award” language of § 8127(d) by citing to language elsewhere in the statute that said “In order to increase contracting opportunities” for VOSBs/SDVOSBs, the VA is required to establish contracting goals. See, e.g., 38 USC § 8127(a). The COFC and Federal Circuit sided with the VA. The Supreme Court, however, rejected this argument finding that “Congress used the word ‘shall’ in §8127(d) as a command.” Kingdomware, 2016 WL 3317563, *7 According to the Supreme Court, the language relied on by the VA was part of a “prefatory clause” that had “no bearing on whether § 8127(d)’s requirement is mandatory or discretionary.” Id. GAO reached a similar conclusion in its Aldevra decision in 2012. See, e.g., Aldevra, B-406205, March 14, 2012, 2012 CPD ¶ 112 (finding that language in §8127(d) was mandatory and that “The phrase [in §8127(a)] explains the purpose of the mandate, which is to meet the goals established under subsection (a), however, the phrase does not create an exception to the mandate”).
The Supreme Court also rejected the VA’s attempt to distinguish FSS “orders” from “contracts” as the term was used in the statute.
The clear winners of the Supreme Court’s Kingdomware decision ultimately are the SDVOSBs and VOSBs that should enjoy more contracting opportunities as a result of the ruling. That said, it is not every day that the differences between opinions of GAO and COFC are decided by the Supreme Court.
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