Today, one week following the Supreme Court’s unanimous decision requiring the U.S. Department of Veterans Affairs (VA) to set-aside contracts and Federal Supply Schedule (FSS) orders for eligible veteran-owned businesses under the Rule of Two, the Senate Committee on Small Business and Entrepreneurship held a hearing on how the decision will affect VA procurement going forward. Chairman David Vitter (R-LA) orchestrated the two-panel hearing alongside Senator Jeanne Shaheen (D-NH). Chairman Vitter made clear that the Senate wanted to understand how the Kingdomware decision will affect veteran-owned businesses and how to ensure that the VA is implementing the statute’s proper interpretation.
The first panel featured Thomas J. Leney, the Executive Director for the VA, and John A. Shoraka, an Associate Administrator of Government Contracting and Business Development for the U.S. Small Business Administration (SBA). Speaking on behalf of the VA, Leney stated that the VA is committed to implementing the Supreme Court’s decision and has already started its review of current procurements. According to Leney, to enforce the decision, the VA is working on creating formal rules and new policy guidelines to regulate how veteran-owned businesses are considered under the Rule of Two. The Supreme Court clarified that the Rule of Two requires setting aside contracts for every competitive VA acquisition, including FSS orders, when two or more eligible veteran-owned concerns will submit offers and an award can be made at a fair and reasonable price. While his remarks emphasized the VA’s approach moving forward, Leney struggled to respond to Senator Vitter’s inquiry into why the VA has spent years improperly applying the Rule of Two to veteran-owned small businesses. While the VA was unable to set a hard cutoff date for when it can assure that all awards will comply with the guidelines of the decision, Senator Vitter set a July 15, 2016, deadline for the VA to issue an update to the Committee to demonstrate their improved procurement methods. According to the chairman, a delay in implementing the Rule of Two would be equivalent to resisting the decision of the Supreme Court – even a three month delay would be unwarranted.
Following the testimony of Leney, John A. Shoraka of the SBA explained that the agency is most concerned with how the VA-specific decision will resonate with other federal procurements. While it is clear that this application of the Rule of Two is specific to VA contracts, the decision removes the distinction between an “order” and a “contract,” which is likely to have ramifications across the board. The SBA plans to work with the General Services Administration (GSA), the U.S. Government Accountability Office (GAO) and the Department of Justice (DOJ) to understand how the new interpretation of the Rule of Two will affect other small business procurements. During the Q&A, Shoraka explained that the SBA also plans to work with the GSA, the DOJ and Federal Acquisition Regulation (FAR) council to resolve inconsistent regulations between 15 USC § 644 of the Small Business Act and 38 U.S.C. §§ 8127-28 of the Veterans Benefits, Health Care, and Information Technology Act (VA Act). The SBA concluded that their goals are to make businesses aware of the decision and ensure that they are taking advantage of the set-aside program.
The second panel featured LaTonya Barton, representing Kingdomware; Michael Phipps, the Managing Director of the Millennium Group Int’l LLC; and Jonathan T. Williams, a partner at the Piliero Mazza law firm. All three speakers emphasized that Kingdomware highlights that the annual small business contracting requirements for federal agencies are a “bare minimum rather than a final destination.” Following their testimonies, Senator Joni Ernst (R-IA) asked Barton her suggestions for implementing the Court’s decision. Barton was well prepared with a response, reading off suggestions on how to improve VA oversight, transparency, ramifications for employees that refuse to comply with the decision, and requesting that the GAO remove the $350 filing fee for bid protests that deter small businesses from protesting awards. The most common suggestion going forward is for the VA to utilize their online database, specifically to monitor certified veteran-owned businesses. Barton explained that the VA reformed their certification process from a one hour application process that required three documents as proof, to a three-month, 65-page arduous endeavor to qualify as a veteran-owned entity. Both panels agreed that the VA must improve the market research procedures by making better use of this already existing database.
Moving forward, with the Senate Committee on Small Business and Entrepreneurship diligently monitoring the VA’s actions in enforcing the decision of the Supreme Court, it is more likely that veteran-owned small businesses will indeed have greater opportunities in VA procurements. While it remains uncertain whether the decision will spill over into other small business set-aside programs – including programs for HUBZone small businesses, small disadvantaged businesses and small women-owned businesses – the Supreme Court’s definition of a task order as a “contract” is set to apply across the board. In addition, the hearing clarified that the goals an agency sets for small business procurement are a floor, rather than a ceiling for federal agencies.