The Lawletter Vol 41 No 9
In Kingdomware Technologies, Inc. v. United States, 136 S. Ct. 1969 (2016), the United States Supreme Court recently declared that the Department of Veterans Affairs (the "VA") is required to give priority to veteran-owned businesses in the bidding process for government contracts as long as two or more veteran-owned small businesses may reasonably be expected to submit fair and reasonable bids. This unanimous decision should provide a boon to veteran-owned businesses and should also give government agencies pause in assessing bids for contract work.
The Kingdomware dispute originated shortly after the enactment of the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the "VA Act"). The VA Act provides that the VA must restrict bid competitions to veteran-owned companies as long as the "rule of two" is satisfied. Specifically, 38 U.S.C. § 8127(d) states:
Except as provided in subsections (b) and (c), for purposes of meeting the goals under subsection (a), and in accordance with this section, a contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States. Despite this statutory language and in contravention to bid protest decisions issued by the General Accounting Office after the enactment of § 8127, the VA did not, in fact, give priority to veteran-owned businesses in the bidding process. Instead, the VA took the position that it had the discretionary authority to order off the General Service Administration ("GSA") Schedule without giving priority to veteran-owned businesses.
In response, Kingdomware Technologies, a service-disabled veteran-owned small business, filed a bid protest claim in the Court of Federal Claims ("CFC"), seeking injunctive relief to compel the VA to comply with § 8127. The CFC, however, agreed with the VA that § 8127 was goal-setting rather than mandatory in nature. Kingdomware Techs., Inc. v. United States, 107 Fed. Cl. 226, 240 (2012). According to the CFC, the goal-setting nature of the VA Act was reflected in the phrase "for purposes of meeting the goals under subsection (a)." Id. The phrase "shall award" was required to be read in conjunction with the goal-setting purpose of the VA Act. Id. This decision was affirmed by the Federal Circuit in Kingdomware Technologies, Inc. v. United States, 754 F.3d 923 (Fed. Cir. 2014).
In a unanimous decision, the Supreme Court reversed. Kingdomware Techs., 136 S. Ct. at 1979. In so doing, the Court held that the language of the VA Act
is mandatory, not discretionary. Its text requires the [VA] to apply the Rule of Two to all contracting determinations and to award contracts to veteran-owned small businesses. The Act does not allow the [VA] to evade the Rule of Two on the ground that it has already met its contracting goals or on the ground that the [VA] has placed an order through the FSS [Federal Supply Schedule].
Id. at 1976.
This decision relied on the use of the word "shall" in the statute. According to the Court, "Congress' use of the word 'shall' demonstrates that § 8127(d) mandates the use of the Rule of Two in all contracting before using competitive procedures." Id. at 1977. The CFC and the Federal Circuit incorrectly relied on the "prefatory clause" to § 8127(d) to find the VA Act to be discretionary in nature. Id. This prefatory clause, however, "has no bearing on whether § 8127(d)'s requirement is mandatory or discretionary[.]" Id. The prefatory clause announces an objective but "does not change the plain meaning of the operative clause, § 8127(d)." Id.
In the aftermath of this decision, the VA can no longer order off the GSA Schedule or award government contracts without giving priority to veteran-owned businesses so long as the "rule of two" is satisfied. As a result, veteran-owned businesses should become more profitable. In addition, government agencies should act more carefully when assessing bids to ensure that they are complying with all relevant laws.