Kingdomware Technologies, Inc. v. United States May Have Profound Impacts on Veterans Affairs Procurements

Lyndsay A. Gorton 

Late last month, the Supreme Court heard oral arguments in Kingdomware Technologies, Inc. v. United States, which concerns the extent to which the Veterans Benefits, Health Care, and Information Technology Act of 2006 (“Veterans Act of 2006”) limits the ability of the Department of Veterans Affairs (“VA”) to use contracting vehicles like the Federal Supply Schedule (“FSS”).  The ruling may have a major impact on VA procurements and warrants close attention from contractors serving the VA.

The Veterans Act of 2006 requires the VA to award contracts to Veteran-Owned Small Businesses (“VOSB”) and Service-Disabled Veteran-Owned Small Businesses (“SDVOSB”) where a 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.” (This is often referred to as the “Rule of Two.”) In 2012, Kingdomware Technologies, Inc. (“Kingdomware”) successfully protested to GAO that the Rule of Two prevented the VA from making an FSS award to a non-VOSB.  The VA declined to follow GAO’s recommendation.  Kingdomware continued to press its case at the Court of Federal Claims, but both the court and Federal Circuit sided with the VA.

At the Supreme Court, Kingdomware once again argued that there is no statutory exemption from the Rule of Two for FSS procurements.  Kingdomware also argued that there is no distinction in the Veterans Act of 2006 between an “order” and a “contract” to exempt the VA from the Rule of Two for orders under preexisting contracts like the FSS.  Kingdomware also claimed Congress intended 100 percent of procurements with qualifying VOSB or SDVOSB bidders should be reserved for those groups.  Though the court expressed some concern that Kingdomware’s interpretation of the statute would prevent urgent needs from being met, Kingdomware responded that the “best value” language offers the government a safeguard.

The government argued that the Rule of Two does not apply to orders placed under preexisting contracts (like the FSS), but only to “wholly new” contracts.  The government claimed that Kingdomware’s mechanical interpretation of the Rule of Two would prevent orders from being placed and interfere with the VA’s mission of caring for veterans.  The government also argued that requiring the Rule of Two for any order, including FSS orders, would exponentially increase litigation and bid protests by disappointed bidders, which would further hamper the agency’s mission.

The Supreme Court’s ruling may have a significant impact on VA procurements.  Each year, the VA purchases billions of dollars of goods and services, and whether those goods and services must be purchased from a veteran-owned small business will affect both veteran- and non-veteran-owned business alike.  If the court sides with Kingdomware, there will be a major shift in the procurement landscape at the VA, with a large incentive to create VOSBs and SDVOSBs.  There also would likely be an increase in bid protest challenges to VA determinations about whether the Rule of Two is met.  A decision is expected this summer.