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VA and Veteran Businesses Square Off in Supreme Court Arena

Yesterday, the Supreme Court heard the oral argument in a case that has the potential to majorly affect all veteran-owned small businesses (VOSBs) competing on the Federal Supply Schedule (FSS): Kingdomware.

Many veteran business owners are already aware of the Kingdomware case, not just because of its implication for their bottom line but also because it’s been dragging on for almost four years now. Here’s the lowdown on what’s happened so far:

Kingdomware History in Brief

In 2012, the Government Accountability Office sustained a number of protests on the grounds that under the Veterans Benefits, Health Care, and Technology Act (the “Act”), the U.S. Department of Veterans Affairs (VA) must conduct market research to determine whether an FSS solicitation should be issued as an SDVOSB set-aside. (Aldevra, B-406205, March 14, 2012; Kingdomware Technologies, B-406507, May 30, 2012).

On November 29th, 2012, however, the Court of Federal Claims (CoFC) ruled that the Department of Veterans Affairs (VA) acted reasonably in determining that it need not set aside FSS contracts for SDVOSBs.

Judge Firestone, who penned the decision, analyzed the VA’s decision using Chevron deference. (Chevron, U.S.A. v. National Resources Defense Council, 467 U.S. 837 (1984)). Chevron deference is the standard used by a court to determine whether to grant deference to an agency’s interpretation and application of its own statute (a statute created to apply to the agency). This involves a two-part step: 1) determining whether Congress had spoken directly on the issue at hand; and 2) determining whether the VA had assigned a permissible definition/interpretation to the applicable provision.

Judge Firestone found that Congress had not spoken directly to the issue of whether the VA was required to conduct mandatory procurements for SDVOSBs under the “Rule of Two.” Accordingly, Judge Firestone proceeded to the second step of determining whether the VA assigned a permissible definition to the applicable provision. In applying the “substantial deference” afforded to an agency’s application of its own statute, Judge Firestone held that the VA’s interpretation was reasonable. In a lengthy analysis, Judge Firestone pointed to the VA’s consistent application of this interpretation, as well as the fact that this interpretation does not conflict with the rest of the Act or the VA Acquisition Regulation.

Kingdomware appealed this decision, but it was unfortunately upheld in a split decision by a district court. Kingdomware then applied for cert to the Supreme Court (its last hail Mary); and in the summer of 2015, the Supreme Court granted cert. This is a victory itself, as the Supreme Court grants cert in only about 1% of cases.

In November of 2015, it appeared the case might be in jeopardy because the Supreme Court raised the issue of mootness (i.e., was the case moot since the contracts at issue had already been performed?). In briefs mandated by the Court, both parties presented a united front in arguing the situation at hand was likely to repeat itself, which the Court accepted, and the case was set for oral argument on February 22, 2016.

In February of 2016, Judge Antonin Scalia passed away. This meant that for Kingdomware to win, it must obtain a 5-3 decision in its favor. In the event of a tie – 4 to 4 – the lower district court decision must stand (and the VA won that case).

Down to Brass Tacks: The February 22 Hearing

The veteran community is now buzzing about the February 22 hearing before the Supreme Court. While I did not have the opportunity to attend, I have reviewed the transcript now on the Court’s website. Here is the nitty gritty:

  • The Justices interrupted Kingdomware’s counsel, Mr. Thomas G. Saunders, early on regarding the issue of whether the issue was moot. After all, the contracts at issue have already been performed. In so doing, they questioned the Rule of Two and whether the requirement to set aside work for SDVOSBs/research whether it should be would slow the procurement process even in times of urgent need. This required Mr. Sanders to provide a clear description of procurement databases and acquisition procedures under the FSS; as we government contractors know, it can be difficult to explain these processes to those unfamiliar with government contracting. The Justices appeared to accept this explanation.
  • The Justices raised questions to Kingdomware’s counsel, Mr. Saunders, regarding how the VA determines “fair and reasonable price,” noting the difficulty (and subjectivity) in determining whether an award can be made on this basis. They expressed concern over constant litigation between SDVOSBs and the VA regarding whether a particular procurement could meet this criterion (if set aside for SDVOSBs). They also inquired as to why every procurement wouldn’t be set aside to veterans, under the applicable criteria. Mr. Saunders referred to a “natural cap” – sure, these criteria are there, but in most procurements the Rule of Two won’t be met, but it was unclear whether the Court bought (or understood) his argument.
  • The Supreme Court literally let the VA’s counsel, Mr. Zachary Tripp, only get one sentence out before interrupting him to ask why the VA walked away from the “winning position” adopted by the federal district court (which had ruled in favor of the VA), which was that the statutory preference for veteran-owned companies applies only if the VA has not met its SDVOSB or VOSB contracting goals.  When Mr. Tripp tried to take a step back to explain the complicated position, Justice Sotomayer interrupted to say: “No. You didn’t listen to me.”

A decision is expected sometime between now and the end of June. As I understand from folks who attended (and based on the moods and questions of the Justices), the decision will be close. I’ll keep you posted!

The entire transcript of the hearing before the Supreme Court can be accessed here.

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In this fight between the VA and veteran business owners, the VA's duty to set aside work for veterans is at stake.

In this fight between the VA and veteran business owners, the VA’s duty to set aside work for veterans is at stake.

6 Responses to “VA and Veteran Businesses Square Off in Supreme Court Arena”

  1. This is important as I operate a SDVOSB. Would we go out of business?

    • Do you do business with the VA on the Federal Supply Schedule (FSS)? For companies that depend on set-asides, it will certainly impact them, but keep in mind that the VA has taken the position for years that it’s not mandatory that they set-aside for SDVOSBs. Accordingly, the decision’s impact will more be, keep status quo or effect a change that’s a major boost to SDVOSBs on the FSS.

  2. Will the recent loss of our Supreme Court Justice change and/or complicate things here? And is Sotomayer & Kagan even qualified to make these decisions? Seem to remember they lacked the legal chops of their predecessors?

    • It puts the vets at a disadvantage – not only do they have to convince five out of the three to vote in their favor, but they have to explain the complicated, convoluted world and rules of government contracts. (Basically, educate the judges and THEN convince them of their position).

      Meanwhile, Chevron deference (a S.C. rule saying that agencies get a lot of leeway in interpreting their own rules) applies, and the VA is interpreting its own regulation here.

      • I would think the very labyrinthian nature of the government bureaucracy would be enough to make the Justices vote on change! Thanks for your prompt and insightful response.

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