Veteran-Owned Small Business Must Be Small
In early June, the U.S. Court of Appeals for the Federal Circuit issued a notable opinion for those involved in government procurement. The case, Kingdomware Techs, Inc. v. United States, was on appeal from the U.S. Court of Federal Claims. Kingdomware, a small certified service-disabled veteran-owned small business, brought suit against the U.S. when the U.S. Department of Veterans Affairs (VA) procured services it needed to install an Emergency Notification Service in several of its hospitals from a vendor on the FSS, although the specific vendor was not a Veteran-Owned Small Business (VOSB). The FSS (Federal Supply Schedule) is a list of vendors approved to do business for any governmental agency, and a Veteran-Owned Small Business may appear on the list. The U.S. Court of Federal Claims found against Kingdomware and the Court of Appeals agreed. The issue came down to statutory construction. Particularly important to the decision was 38 U.S.C. § 8127(c), which states:
“(d) USE OF RESTRICTED COMPETITION. – 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 [VA] 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.” [emphasis added]
Importance of a Single Word
Kingdomware contended that the word “shall” required that where the Rule of Two was met, the agency was required to award the contract to a veteran-owned small business (VOSB). The “Rule of Two” is the part of the statute that requires (1) at least two VOSBs that will submit bids and (2) a reasonable belief the award will be at a fair price. Unlike other federal statutes, the VA statute does not include an exception for FSS orders.
The Court of Appeals disagreed with Kingdomware and held that if the VA had met its goals for contracting with veteran-owned small businesses, it did not have to consider or comply with the Rule of Two. In reaching this conclusion, the court emphasized the first section of the statute, which states “for the purposes of meeting goals under subsection (a).” Subsection A deals with establishing goals for contracting with small and veteran-owned small business interests. The court reasoned that the “for the purposes” section would be meaningless if it found an across the board requirement to comply with the Rule of Two.
Decision Was Not Unanimous
Not all the judges agreed and a strong dissent was written by one of the judges, who pointed out logical and decisional flaws in the court’s opinion. The judge emphasized the mandatory language in the statute and VA regulatory scheme as well as the unusual approach the court took in explaining that the VA does generally meet their contracting goals, a somewhat irrelevant fact.
It will be interesting to see the impact, if any, this decision has on the VA ‘s future contracting. If you want to read more on the subject of SDVOSB certification, read here.