Overview

The Supreme Court held that the Department of Veterans Affairs’ (VA)  set-aside law was mandatory and must be applied to all competitive  contract awards, including orders on the Federal Supply Schedules.  Awards must also be made to Veteran-Owned Small Businesses (VOSBs) verified as such by the VA.

On June 16, 2016, the U.S. Supreme Court ruled that consistent with  Public Law 109-461 (38 U.S.C. 8127 and 8128), the VA shall award  contracts based upon competition restricted to SDVOSBs or VOSBs when a  contracting officer has a reasonable expectation, based on market  research, that two or more firms listed as verified in Vendor Information Pages database are likely to submit offers and an award can  be made at a fair and reasonable price that offers best value to the  United States.

 Background:

1. On June 16, 2016, the U.S. Supreme Court reversed a lower court decision impacting the Department’s original implementation of the Veterans First Contracting Program. In the Kingdomware case, the Court  ruled that under 38 U.S.C. § 8127(d), VA must set aside procurements for  competition among veteran-owned small businesses “if a contracting  officer has a reasonable expectation that two or more small businesses  owned and controlled by veterans will submit offers and that the award  can be made at a fair and reasonable price that offers the best value to  the United States.” This is known as the “Rule of Two.” Major Supreme  Court holdings in the Kingdomware case were as follows: 
   1. § 8127 is mandatory, not discretionary and its text requires the Department to apply the Rule of Two to all contracting determinations.
   2. The Rule of Two contracting procedures in 38 U.S.C. § 8127(d) are not limited to those contracts necessary to fulfill the Secretary’s goals under § 8127(a); and
   3. 38 U.S.C. § 8127(d) applies to orders placed against the Federal Supply Schedules (FSS). Thus, FSS orders fall within the mandate in 38 U.S.C. § 8127(d).
2. On October 17, 2018, the United States Court of Appeals for the Federal Circuit (the Federal Circuit) affirmed the lower court’s decision that the VA Rule of Two takes precedence over procuring products or services found on the AbilityOne Procurement List.  Therefore, VA has deviated from VAAR 808.002 to reflect a change to  require contracting officers to apply the VA Rule of Two to determine  whether a requirement should be awarded to service-disabled  veteran-owned small businesses (SDVOSBs) and veteran-owned small  businesses (VOSBs) under the authority of 38 U.S.C. 8127-28, by using  the preferences and priorities in VAAR subpart 819.70 prior to  considering an award to an AbilityOne non-profit organization or the  Federal Prison Industry, Inc. A Temporary Rule was issued in the Federal Register on June 24, 2019 at 84 FR 29389. The Temporary Rule is effective June 24, 2019 through July 1, 2021, and provides notification of Class Deviation from 808.002, Priorities for Use of Government Supply Sources and VAAR Subpart 808.6, Acquisition from Federal Prison Industries, Inc., dated May 20, 2019, which revised these subparts to reflect language consistent with the decision of the Federal Circuit.

February 15, 2016

APTAC staff article

At long last, the Supreme Court is set on February 22, 2016, to hear  Kingdomware Technologies, Inc. vs United States, which charges the US Department of Veterans Affairs with creating loopholes to avoid a statutory contracting preference for veterans. This is a critical moment for Veteran-owned and Service-Disabled Veteran-owned Small Businesses; fortunately, there are some tremendous resources- including real-time blogs and a free webinar recapping the oral arguments – for those wishing to stay informed.

At issue is the requirements of the Veterans Benefits, Health Care and Technology Act of 2006 (the “VA Act”) directed the VA to prioritize SDVOSBs and VOSBs in agency contracting. The VA Act directed the VA to establish annual goals for contracting with SDVOSBs and VOSBs. The VA Act then establishes a contracting preference for SDVOSBs and VOSBs, codified at 38 U.S.C. § 8127(d):

(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 Department 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. 

Elsewhere, the statute specifies that SDVOSBs are to be given top priority under this “rule of two” process; VOSBs have the second highest-priority.

The SDVOSB and VOSB priorities created under the VA Act were widely viewed as a “Veterans First” policy under which veteran-owned businesses would be preferred for all VA procurements. But instead of applying the “rule of two” across the board, the VA has taken the position that it  can buy goods and services using the Federal Supply Schedule without first considering SDVOSBs or VOSBs. The VA’s position has enabled the VA to circumvent SDVOSBs and VOSBs whenever goods or services were available on the FSS.

A number of bid protests in response to this practice have been upheld by the GAO, which stated in Aldevra, B-405271, B-405524 (Oct. 11, 2011) that the law was “unequivocal; the VA ‘shall’ award contracts on the  basis of competition restricted to SDVOSBs where there is a reasonable  expectation that two or more SDVOSBs will submit offers and award can be  made at a fair and reasonable price.” But the Court of Federal Claims  held that the VA had reasonably interpreted the VA Act, and the Federal  Circuit court upheld that decision. The issue will now be heard by the  U.S. Supreme Court.

https://www.aptac-us.org/news/supreme-court-determine-critical-vosb-sdvosb-contracting-issue/