On May 1, 2015, the government is expected to submit its response to the petition for certiorari filed by Kingdomware Technologies, Inc., which seeks to reverse a 2-1 ruling by the U.S. Court of Appeals for the Federal Circuit in Kingdomware Technologies, Inc. v. United States, 754 F.3d 923 (Fed. Cir. 2014).  Kingdomware contends in its petition that the Federal Circuit’s decision improperly limits the opportunities for veteran-owned small businesses to competitively bid for contracts with the Department of Veterans Affairs (“VA”).

The Kingdomware petition is one to watch in light of the significant adverse impact imposed by the Federal Circuit’s ruling on veteran-owned small businesses.  If Kingdomware’s petition is granted, the Supreme Court will have the opportunity to restore the prospects for competitive bidding by veteran-owned small businesses to the full extent that Congress intended.  (Full disclosure:  Duane Morris LLP filed an amicus brief on behalf of a coalition of veteran-owned small businesses in support of Kingdomware.  The American Legion also filed an amicus brief in support of Kingdomware).

The Veterans Benefits, Health Care, and Information Technology Act of 2006

Congress enacted the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the “2006 Act”) because prior attempts to bolster contracting by veteran-owned small businesses (“VOSBs”) and service-disabled veteran-owned small businesses (“SDVOSBs”) had fallen unacceptably short.  Recognizing the VA’s unique obligation to serve veterans, Congress enacted the 2006 Act to impose specific obligations on the VA (not imposed on any other agency) to award contracts on the basis of competitive bidding by VOSBs and SDVOSBs where certain qualifications are met.  The 2006 Act’s provisions that create a mandatory mechanism for competitive bidding by VOSBs and SDVOSBs are no accident; the 2006 Act is designed to use the VA as a targeted incubator for veteran contracting.

Under the express terms of the 2006 Act, and prior to using another procurement method, the VA must assess whether it can contract through competition between two qualified SDVOSB or VOSB bidders that can submit offers that lead to a contract award at a fair and reasonable price and offer the best value.  38 U.S.C. § 8127(d); 48 C.F.R. §§  819.7005, 7006 (SDVOSB and VOSB bidding, relative to other businesses).  When the VA did not follow that procedure for a contract for emergency notification services for which Kingdomware was qualified to bid, Kingdomware filed a bid protest that ultimately led to the Federal Circuit’s decision.

The Federal Circuit Reads Out the Mandatory Competitive Bidding Provision From the Act

The Federal Circuit read out of the 2006 Act the mandatory provision for competitive bidding by VOSBs and SDVOSBs.  38 U.S.C. § 8127(d) states:

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.

38 U.S.C. § 8127 (d). (Subsections (b) and (c) provide for awarding contracts to VOSBs and SDVOSBs through other mechanisms). The Federal Circuit held that the word “shall” should be placed in “harmonious context” in light of prefatory language in 8127(d) and elsewhere in the 2006 Act.  Kingdomware, 754 F.3d at 934.  Under the Federal Circuit’s approach, the VA need not use competitive bidding by VOSBs and SDVOSBs unless the VA in its discretion deems it necessary to meet its purchasing goals.  The Federal Circuit thus interpreted goal-setting language as an implicit ceiling on the VA’s obligations.

Perhaps concerned that giving the statute’s terms their full effect would hamstring the VA, the Federal Circuit arrived at a distorted result that deprives VOSBs and SDVOSBs of the targeted support Congress intended those businesses to receive through competition before the VA.  In a strong dissent, Judge Reyna demonstrated that the panel majority had deprived the mandatory competitive bidding provision of its force and effect, had “impede[d] congressional objectives,” and had rendered other statutory language “inoperative and unnecessary.” Id. at 940.

The Federal Circuit’s novel reading of the VA’s statutory obligations profoundly impacts VOSBs and SDVOSBs.  The VA awards billions of dollars in contracts each year, and by law these contracts should be the subject of competitive bidding by VOSBs and SDVOSBs when statutory qualifications are met.  The Federal Circuit’s decision eliminates a key stepping-stone for thousands of veteran-owned small businesses.

The petition and the Kingdomware decision have drawn wide attention, and the government’s May 1, 2015 response will be closely watched, as will the Court’s June 4, 2015 conference.

Conclusion

The Kingdomware petition presents important questions about the VA’s statutory obligation to provide competitive bidding opportunities for veteran-owned small businesses.  For more information about the case, the brief on behalf of a coalition of veteran-owned small businesses is here.