Supreme Court: “Rule of Two” Applies to All VA Acquisitions

GSA has reached out to VOSB and SDVOSB businesses to inform them of a significant change in how the VA will conduct its future acquisitions.

According to the VA’s “Rule of Two,” if at least two VOSB or SDVOSB businesses can provide a service at a fair and reasonable price, the VA must set-aside the contract for such businesses, in order to meet their VOSB/SDVOSB contracting goals for the year.

Until now, the VA has interpreted this to mean that, once yearly VOSB/SDVOSB goals have been met, the Department is free to purchase from anybody it likes – no need for set-asides.

In June 16’s Kingdomware Technologies, Inc. v. United States decision, the Supreme Court disagreed. The controversial statute at issue was 38 U.S.C. § 8127(d), which states:

for purposes of meeting the goals under subsection (a)…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 (emphasis added).

While the VA argued that “for the purposes of meeting the goals” meant the Rule of Two applied only to meeting those annual VOSB/SDVOSB goals—and disappeared once the goals were met—the Court ruled that this phrase is merely a preface, and does not carry the weight the VA had assigned it.

Instead, the Court emphasized the phrase “shall award.” According to the Court’s reasoning, “shall” is a mandate, not a recommendation: in other words, VA does not have discretion once their VOSB/SDVOSB goals for the year have been met; instead, they must always follow the Rule of Two.

Additionally, the VA argued that “purchase orders” conducted under the Federal Supply Schedules did not constitute “contracts,” and should thus be excluded from the Rule of Two. Once again, the Court disagreed. As Arnold & Porter reports:

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.

It remains to be seen what effect this interpretation will have on the numerous contract vehicles through which government business is conducted. One thing, however, is immediately clear: VOSBs and SDVOSBs have gained a tremendous advantage in VA acquisitions.

As such, it is highly recommended that all VOSB/SDVOSB organizations register and become verified in the VA’s database. Registration instructions can be found here and here.