Supreme Court Rejects Limits on VOSB Set-Asides

Reversing the Court of Appeals for the Federal Circuit, the Supreme Court held the requirement for the Department of Veterans Affairs to use Rule of Two set-aside procedures is not limited to contracts necessary to meet the VA’s veteran-owned small business contracting goals and applies to orders under the Federal Supply Schedule (Kingdomware Technologies, Inc. v. U.S.). The case arose when the VA awarded an FSS contract for emergency notifications services to a non-VOSB vendor. The protester, a service-disabled VOSB, first filed in the Government Accountability Office, contending the Veterans Benefits, Health Care, and Information Technology Act of 2006 (38 USC 8127 and following) always bars the VA from using the FSS without first invoking the Rule of Two. At §8127(d), the Act provides that the VA “shall award contracts on the basis of competition restricted to [VOSBs] if the contracting officer has a reasonable expectation that two or more [VOSBs] will submit offers and that the award can be made at a fair and reasonable price ….”

GAO and Lower Courts

GAO sustained the protest, but after the VA declined to follow GAO’s recommendation to resolicit the requirement as an SDVOSB set-aside, the protester filed in the Court of Federal Claims. The CFC granted the VA summary judgment, and the Federal Circuit affirmed, concluding the Rule of Two was mandatory only until the VA satisfied its annual contracting goals under §8127(a).

Unambiguous Requirement

In a unanimous opinion by Justice Thomas, the Court held §8127(d) is mandatory, “requires the [VA] to apply the Rule of Two to all contracting determinations,” and “does not allow the [VA] to evade the Rule … on the ground that it has already met its contracting goals or … has placed an order through the FSS.” Section 8127(d) is unambiguous. Its use of the word “shall” connotes a requirement. The contrasting use of the word “may” in §8127(b) and (c), which provide exceptions for noncompetitive procedures and sole-source contracts for lower value acquisitions, “confirm[s] Congress used the word ‘shall’ … as a command.” In limiting application of the Rule of Two, the Federal Circuit relied on prefatory language in §8127(d) referring to the purpose of meeting the VA’s contracting goals, but the prefatory clause did not change the plain meaning of the operative clause. Moreover, §8127(b) and (c) contain identical “purpose” clauses, and the Federal Circuit’s interpretation would prohibit application of the exceptions once the VA’s contracting goals were met. There also was no merit to the VA’s arguments for preserving an exception for FSS orders. FSS orders are “contracts” and §8127(d) applies when the VA “award[s] contracts.” In addition, the VA does not limit use of the FSS to simplified acquisitions, and the VA’s interpretation is not entitled to deference when the statute is unambiguous.

About Marilynn Helt

Marilynn Helt is a Senior Writer/Analyst in the Government Contracts group at Wolters Kluwer Law and Business. Marilynn analyses new developments affecting government contracting and supports the group’s legal research tools, with a focus on revising and updating explanations of contracting topics. With over 20 years’ experience providing authoritative content for legal professionals, Marilynn has written articles and edited and helped launch outside-authored treatises, books, and journals. Marilynn has prior law firm experience in international tax and estate planning. She received a BA in humanities and German from Valparaiso University, an MA in German literature from Washington University in St. Louis, and a JD magna cum laude from the University of Illinois College of Law.
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