New analysis:
US Supreme Court to hear VA case: Kingdomware
- Petitioner says VA has duty to research & apply Rule of Two
to veteran-owned small firms on every contract, including FSS
- VA says that approach would delay buys of medical supplies
and services and “seriously disrupt” providing care to veterans
A dramatic showdown is shaping up before the U.S. Supreme Court that will decide to what degree the Veterans Affairs Department is obligated to give priority to veteran-owned small businesses to fulfill tens of thousands of its mission requirements.
The case is one of very few cases ever considered by the Supreme Court on the issue of federal small business contracting. Supporters of Kingdomware say if they prevail there will be many more opportunities for veteran-owned small firms, while the VA says a Kingdomware win would result in significant delays and increased costs for providing care to eight million veterans. Oral arguments will be heard on Nov. 9.
Under a 2006 law, the VA must put veteran-owned small businesses first in line in its contracting. The VA’s implementing regulations further set a first preference for service-disabled veterans and a second preference for veterans who are not service-disabled.
Since the law took effect, the VA has more than quadrupled its contracting with service-disabled veteran-owned small businesses (SDVOSBs) in recent years: from $830 million in fiscal 2007 to $3.6 billion in fiscal 2014.
The percentage of VA contracting with SDVOSBs also rose sharply, from 7% to nearly 19% during the period, far exceeding the government’s 3% goal.
However, Kingdomware Technologies Inc. has challenged the VA’s interpretation of its duties. In its brief before the Supreme Court, Kingdomware contends that Congress meant for the VA to perform research, and apply the Rule of Two, on every single contract, to determine if there are two or more veteran-owned small firms that are capable and eligible to fulfill the requirement. If there are, then the VA must set aside that contract for the vet-owned firms, its brief to the court states.
The VA, in its Sept. 29 brief to the court, disagreed with that interpretation. The VA asserts that Congress meant for Federal Supply Schedule orders to be exempted.
If the court backs Kingdomware’s approach, that change could “seriously impede” and “seriously disrupt” the VA’s ability to care for veterans, the VA claimed in its brief.
“Petitioner’s expansive interpretation of Section 8127(d) would mark a radical departure from past practice and could seriously impede the VA’s effort to provide high-quality care to veterans,” the VA wrote.
“If the VA needs more angioplasty stents, laparoscopes, critical-care beds or surgical scrubs; if a mortuary freezer for preserving deceased veterans’ remains is broken; if a VA hospital needs more laboratory analysis services; or if a VA hospital needs to fill temporary vacancies for cardiologists or nurses; then the VA can open a GSA website, check three listings or review three quotes, and select the one that provides the best value,” the VA brief stated.
But, if the court rules for Kingdomware, the VA said it would be required to perform market research and do a Rule of Two determination for about 130,000 FSS contracts each year, among others.
“That approach would seriously disrupt the VA’s operations,” the VA continued in its brief. “Adding new obstacles to tens of thousands of procurements annually would significantly increase the VA’s burden, likely force the VA to hire many more contracting officers and delay the VA’s acquisition of important medical supplies and services.”
Supporters of Kingdomware believe that a win would provide a huge boost for veteran small business contractors, although the VA says that is uncertain.
In those cases where two SDVOSBs were found and set-asides are required, the VA said it likely would lose millions of dollars in savings in comparison to its current high-volume FSS contracts, the agency added.
On the face of it, having to perform additional research on potentially 130,000 transactions each year would appear to be a significant new burden for the VA. But Thomas Saunders, attorney for Kingdomware, is skeptical of those concerns.
The government has “greatly exaggerated the consequences of complying with the Rule of Two,” Saunders told Set-Aside Alert. He claims VA already has “a lot of options for streamlining the procurement process while still favoring veterans. And Congress determined that the administrative costs are far outweighed by the important goals that Congress passed the law to accomplish.”
Among the ways VA can reduce the burden and avoid the Rule of Two is by awarding sole-source contracts to SDVOSBs and VOSBs of up to $5 million, government contracting attorney Steven Koprince told Set-Aside Alert. And for situations involving unusual and compelling urgency, the VA can award non-competitive contracts under FAR 6.302-2, said Koprince, who also wrote a brief supporting Kingdomware.
However, the VA said that sole-source and noncompetitive contracts also create delays and waste and increase the risks of paying inflated prices and of obtaining inferior products or services.
Another government contracting specialist told Set-Aside Alert that market research under the Rule of Two can be very time-consuming, especially for complex procurements.
“If you do a NAICS code search to find SDVOSB firms it can yield an extremely large number of responses. Going through that large number to find the companies that can meet the specific requirements can be an arduous process, particularly if the requirements are complex. If you have 500 company names, how do you find the ones who are qualified?” the specialist said.
Notwithstanding those potential impacts, supporters of Kingdomware believe that a win would provide a huge boost for veteran small business contractors.
“We are excited about this case,” Scott Denniston, executive director of the National Veteran Small Business Coalition, told Set-Aside Alert. A Kingdomware win “would bring an influx of new businesses into the market. SDVOSB contracting at the VA is 19% now, but I think it could go to 30%,” he said.
Are there enough SDVOSBs to make that realistically possible? It is difficult to know, but Denniston said he believes the current group of SDVOSBs has room to grow. The VA says there are 7,350 verified firms in its Vets First database.
But VA officials say it’s not certain that vet-owned firms would benefit by a Kingdomware win because some veterans with existing FSS contracts may be displaced.
Regardless of the outcome, the Kingdomware case is likely to be a landmark. The case began with the company’s protest to the Government Accountability Office. GAO upheld the protest, but the VA did not follow GAO’s recommendations. The protest moved to the Court of Federal Claims and the US Court of Appeals, and both agreed with the VA. VA officials declined further comment.
More information: Briefs on the case, courtesy of SCOTUS blog http://goo.gl/LPuHiu
Kingdomware reply brief http://goo.gl/f1CFjtOMB
