US Supreme Court ruling raises broader questions for contractors
Court said task orders are contracts--differs from past policy;
Mandatory VA vet preference may hurt 8(a), HUBZone, WOSB
The U.S. Supreme Court’s recent decision ordering mandatory contracting preferences for veterans at the Veterans Affairs Dept. may have much broader consequences for small business federal contracting.
The ruling may affect how agencies must apply the Rule of Two, especially regarding purchases from the GSA Schedules, according to A. John Shoraka, associate administrator of government contracting and business development for the Small Business Administration.
The court’s decision
In the Kingdomware Technologies ruling, the court said the VA must apply the Rule of Two by considering small businesses owned by veterans in each and every procurement, including those under the Federal Supply Schedules (also called the GSA Schedules).
Under the Rule of Two concept, small businesses are to be considered for contracts if there are two or more qualified small businesses that can do the work at a reasonable price.
VA had treated the FSS orders as exempt because they were task orders and not contracts.
In its ruling, the court declared that the Rule of Two applies to task orders--including task orders on the FSS--and therefore such task orders are contracts.
Broader questions
The court’s statements are now raising broader questions for all federal contracting because they are contrary to past interpretations of the Rule of Two, according to testimony by Shoraka before the Senate Small Business and Entrepreneurship Committee on June 23.
“The Kingdomware decision may have government-wide procurement implications,” Shoraka testified.
“Previously, the Government Accountability Office and lower courts have held the statutory Rule of Two does not apply to orders placed under Schedule contracts,” Shoraka said. “These previous decisions were based on the interpretation of statute for the Schedule program and the Federal Acquisition regulation, which provided that the small business preference programs are not mandatory when ordering off a Schedule contract.”
The Kingdomware decision did not clarify how the Rule of Two should be applied beyond the VA, and therefore “it is unclear what impact the ruling has beyond the VA,” Shoraka said.
The SBA intends to hold discussions with the Justice Department, FAR councils, GSA, SBA Small Business Advisory Council and others to “discuss whether any changes to regulations are needed,” he said.
A “sleeper issue”
The issue of whether the court’s statements on the Rule of Two will now apply to GSA Schedules contracts is a “potential sleeper issue for federal contractors,” according to a commentary by attorneys at Arnold & Porter LLP law firm.
“The Court’s discussion of FSS orders as clearly being contracts could implicate other areas of federal contracting law where Congress, the FAR Council, the courts, and GAO have made careful distinctions between multiple-award vehicles, individual orders under those vehicles, and government contracts generally,” Arnold & Porter attorneys wrote.
The court’s broad language on contracts also may impact interpretations of federal grants, and cooperative agreements, as well as on non-FAR “other transactions authority” contracting, they asserted.
“Contractors and their counsel should pay attention to this sleeper issue,” the attorneys advised.
Fewer contracts for small firms?
Shoraka also said that the court’s decision likely will result in the VA awarding more contracts to veteran-owned small firms, and possibly fewer contracts to support other small, disadvantaged, 8(a), HUBZone and Women-Owned small firms.
Shoraka reminded the Senate panel that through the SBA’s parity regulations, which the Senate committee has supported, agency contracting officers have flexibility in deciding which type of small business set-aside is most suitable for a procurement to meet the agency’s small business participation goals. That flexibility assures that goals are met in as many types of set-asides as possible.
However, the court removed that flexibility for the VA.
More information:
Shoraka testimony: http://goo.gl/PDpszN
Arnold & Porter LLP commentary: http://goo.gl/yiORhQ
