Veteran-Owned Small Businesses Reap Big Win at U.S. Supreme Court

The U.S. Supreme Court unanimously ruled on June 16 that when Congress wrote “shall,” it meant “shall.” The result of its decision in Kingdomware Technologies Inc. v. United States will have major implications for the federal contracting efforts of veteran-owned small businesses (VOSBs) and may well give VOSBs a big boost in their constant efforts to gain a larger share of federal procurement dollars.

The background of the case is straightforward. In 2006, Congress enacted the Veterans Benefits, Health Care, and Information Technology Act, with the specific intention of helping VOSBs. The law provides that the Department of Veterans Affairs, “for purposes of meeting the goals” of adequate VOSB representation, “shall award” contracts to VOSBs when there is a “reasonable expectation” that two or more such businesses will bid for the contract at “a fair and reasonable price that offers best value to the United States.” This requirement is known as the “Rule of Two.”

In its regulations implementing the act, however, the department specified that the act’s requirements don’t apply to purchases from the General Services Administration’s Federal Supply Schedule (FSS). Under the FSS, once the GSA and a vendor have reached a broad supply agreement, the government can then simply order items and services from the vendor by issuing purchase orders.

The dispute arose after Kingdomware, which is a VOSB, failed to receive a contract from the department through the FSS in 2012, and a non-veteran-owned company got the work instead. Kingdomware filed a formal bid protest with the Government Accountability Office (GAO). The GAO ruled in its favor, saying that the department had unlawfully failed to comply with the Rule of Two. On appeal by the department, both the U.S. Court of Claims and the U.S. Court of Appeals for the Federal Circuit disagreed with the GAO and upheld the contract award.

Notably, the Federal Circuit declined to apply the Rule of Two here because it said that it was crucial that in this instance, the department had already met its annual contracting goals. It said that the “mandatory application of the Rule of Two was limited to contracts necessary to fulfill its statutory purpose — to provide a means of satisfying the Department’s annual contracting goals,” and that “as long as those goals were satisfied, the Department need not apply the Rule of Two any further.” This was a 2-1 ruling, with one judge dissenting.

The U.S. Supreme Court unanimously reversed this ruling, holding that neither the fact that the department had met its contracting goals nor the fact that the contract award came from the FSS negated the absolute Congressional mandate to seek two bids from VOSBs.

The words “shall award,” Justice Clarence Thomas wrote for a unanimous Court, meant that the department must do so, without exception.

“We hold that [this requirement] is mandatory, not discretionary,” the Court held. “Its text requires the Department 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 Department to evade the Rule of Two on the ground that it has already met its contracting goals or on the ground that the Department has placed an order through the FSS.”

This could not be much clearer. The word “shall,” the Court said, is a command and imposes a mandatory duty, not an option.

The result of this important ruling is that VOSBs will enjoy the preferences that Congress intended them to have. There’s little question that this is a big win for veteran-owned businesses, and by implication for other businesses that Congress chose to prefer in federal procurement.

As this decision plays out in the world of government contracting, we are a law firm that understands these government preference programs, and we can help any prospective contractor navigate its way to success.

Posted in Government Contracts and tagged , , .