On June 22 of this year, the Supreme Court granted Kingdomware Technologies, Inc.’s petition for certiorari review of the Federal Circuit’s decision in Kingdomware Tech. Inc. v. United States, 754 F.3d 923 (2014).  In Kingdomware, the Federal Circuit affirmed the Court of Federal Claims’ decision that the 2006 Veterans Act (Act) did not require the Department of Veteran Affairs (VA) to conduct the Rule-of-Two analysis of Service-Disabled Veteran-Owned Small Businesses (SDVOSBs) or Veteran-Owned Small Businesses (VOSBs) before deciding to use the Federal Supply Schedule (FSS) for its acquisitions, as long as the agency satisfied its annual small business participation goals.

Kingdomware Technologies, a certified SDVOSB, initially filed a bid protest with the Government Accountability Office (GAO) after the VA decided to implement an Emergency Notification Service in a number of its medical centers and its contracting officer decided to use an FSS vendor that was not a VOSB.  Kingdomware argued that the award was illegal because it violated the Act’s Rule-of-Two analysis requirement – that the VA had to first determine whether to set aside the contract for SDVOSBs and VOSBs before using the FSS.  The GAO agreed, but the VA decided not to abide by the GAO’s recommendation.  Kingdomware then brought its case to the Court of Federal Claims, which agreed with the government’s interpretation of the Act and granted the government summary judgment.

The Act, codified at 38 U.S.C. § 8127, sets out the so-called Rule-of-Two for VA acquisitions, requiring that a “contracting officer of the Department shall award contracts on the basis of competition restricted to [SDVOSBs and VOSBs] if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers….”  § 1827(d).  Despite this seemingly mandatory language, the Court of Federal Claims found that, given the introductory phrase to that provision, which states “for purposes of meeting the goals under subsection (a)” (which authorizes the agency to establish its SDVOSB and VOSB contracting goals), subsection (d) only applies to attempts to meet those goals.  Said differently, if the VA is otherwise meeting its stated goals, it need not engage in the analysis and is free to use the FSS without first determining whether the contract should be set aside for SDVOSBs and VOSBs.

Judge Jimmie Reyna dissented, stating “[t]he plain language of the 2006 Veterans Act unambiguously requires VA contracting officers to conduct a Rule of Two analysis in every acquisition and does not exempt task or delivery orders under the [FSS] from this imperative.” And that “[p]articipartory goals … are aspirational, and an agency cannot refuse to set aside an acquisition solely because small businesses already receive a fair proportion of the agency’s contracts.”

The Supreme Court will have to resolve the critical question of whether the VA’s SDVOSB and VOSB goals establish a ceiling for small business set asides or a floor.  Under the Federal Circuit’s ruling, the VA arguably has the discretion not to use the Rule-of-Two analysis in any acquisition as long as it is meeting its stated small business goals.  In its petition for cert, Kingdomware argued that “[i]f permitted to stand, the Federal Circuit’s interpretation of the 2006 Veterans Act will result in substantially fewer opportunities for [VOSBs and SDVOSBs] than Congress intended.”  Regardless of which way the Supreme Court rules, the outcome will have a significant impact on small business concerns doing work with the VA going forward.