A recent U.S. Supreme Court decision may provide more government contracting opportunities for service-disabled and other veterans. The decision broadened the effect of a Congressional mandate about contracting with veterans.
Background of Procurement
In 2012, the U.S. Department of Veterans Affairs (VA) procured an emergency notification service for four medical centers. The contract lasted 1 year, with an option to renew for 2 more years. The VA procured the service from a non-veteran-owned business by using the Federal Supply Schedule (FSS), sponsored by the General Services Administration (GSA).
Federal Supply Schedule
The GSA negotiates contracts with various vendors to provide both products and services, usually at a lower price than would be charged businesses (non-governmental organizations). Once the GSA and the vendors reach an agreement, the products and services are then listed on the FSS, and the schedule is provided to all other federal government agencies. The agencies can then issue purchase orders for any of the listed products or services instead of using the government’s standard competitive bidding process.
Basis for bid protest
Kingdom Technologies, Inc. (KTI), is a service-disabled veteran-owned small business, capable of providing the emergency notification service. After learning that the non-veteran-owned business was providing the service, KTI filed a bid protest with the Government Accountability Office (GAO).
KTI maintained that the VA violated the Rule of Two of 38 U.S.C. § 8127(d). This statute requires the Secretary of Veterans Affairs to set annual goals that encourage contracting with veteran-owned and service-disabled veteran-owned small businesses. As part of this process, the statute requires that the VA award contracts by restricting competition for contracts to service-disabled or other veteran-owned small businesses, provided that the contracting officer reasonably expects at least two vendors in this category will submit offers that will result in a fair and reasonable price and offer the best value to the government. Hence, the Rule of Two.
The statute also provides two exceptions to the Rule of Two. First, if the procurement is less than $150,000 (the current simplified acquisition threshold), the contracting officer may use non-competitive procedures to award a contract to a veteran-owned small business. Second, if the procurement is over $150,000 but under $5 million, the contracting officer may use non-competitive procedures to award the contract to a veteran-owned small business, provided that the business is a responsible source in terms of performance and the price is fair and reasonable to the government.
KTI maintained that the VA should have followed the Rule of Two before it acquired the service through the FSS; that is, the VA should have checked on whether two veteran-owned businesses could have performed the service at a fair and reasonable price.
The VA maintained that the Rule of Two should be followed only if the VA had not met its annual contracting goals. In other words, if the VA had already met its annual goal of setting aside a portion of its contracts to veteran-owned businesses, it could then use the FSS or a competitive process for acquiring the service.
GAO ruling and subsequent history
The GAO agreed with KTI and recommended that the VA conduct market research to see whether at least two veteran-owned businesses could fulfill the procurement. The VA disagreed with the recommendation. At this point, KTI filed suit in the U.S. Court of Federal Claims, seeking declaratory and injunctive relief. The claims court awarded summary judgment to the VA. KTI then appealed to the U.S. Circuit Court of Appeals for the Federal Circuit, which affirmed the decision of the claims court. KTI then appealed to the U.S. Supreme Court.
Supreme Court’s decision
The Supreme Court found that § 8127 is mandatory, not discretionary. The VA is required to apply the Rule of Two to all procurements and to award contracts to veteran-owned small businesses. It doesn’t allow the VA to evade the Rule of Two because it has already met its contracting goals or because it has already placed an order through the FSS.
What does this mean for veteran-owned small businesses?
Because all VA procurements are now subject to the Rule of Two, veteran-owned small businesses may see increased opportunities to provide the VA products and services. But to take advantage of the opportunities, these businesses need to make sure they are verified as a veteran-owned small business.
For more information, see Kingdomware Technologies, Inc. v. United States, decided June 16, 2016.
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