Kingdomware Shocker: VA Abandons Goal-Setting Argument

In a stunning development in the Kingdomware SDVOSB/VOSB Supreme Court case, the Government has abandoned the argument that the statutory preference for veteran-owned companies applies only if the VA has not met its SDVOSB or VOSB contracting goals.

Although this argument was hotly debated, it was successful both at the Court of Federal Claims and again at the Federal Circuit.  But now, just weeks away from oral arguments, the Government’s Supreme Court brief jettisons the Government’s own previously successful argument in favor of an entirely different rationale for refusing to honor the statutory SDVOSB and VOSB preferences.

The last-minute, wholesale substitution of arguments doesn’t say much for the Government’s confidence in its case. And on the merits, the Government’s new argument is no better than the one it has abruptly abandoned.

As followers of the Kingdomware case may recall, the dispute turns on the language of 38 U.S.C. 8127(d), which states:

(d) Use of Restricted Competition.— Except as provided in subsections (b) and (c), for purposes of meeting the goals under subsection (a), and in accordance with this section, 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. 

Subsection (a), in turn, requires the VA to establish goals for SDVOSB and VOSB contracting.  At the Court of Federal Claims, and again at the Federal Circuit, the VA argued–successfully–that the phrase “for purposes of meeting the goals under subsection (a)” meant that the VA must only apply the “Rule of Two” if the goals in question have not been met.

Under attack by Kingdomware (and certain Kingdomware supporters), the Government has completely abandoned its previously successful argument.  In its Supreme Court brief, the VA states:

VA contracting officers must apply Section 8127’s contracting preference whenever they solicit and award new contracts on the open market—i.e., through simplified acquisition procedures, sealed bidding, or contracting by negotiation—even if it is clear that the Secretary’s goals for a particular year will be achieved.  And if the Rule of Two is satisfied, the VA must award the contract either on the basis of restricted competition or on a sole-source basis (if subsection (b) or (c) is satisfied as well).  See 38 U.S.C. 8127(d).

I am not a regular follower of Supreme Court litigation (the GAO, SBA Office of Hearings and Appeals, Boards of Contract Appeals and Court of Federal Claims are generally more than enough to keep me busy).  I would have to imagine, though, that it is not exactly the norm for the successful party in the lower courts to abandon the very argument that led to that success.  To me, the Government’s last minute switch suggests that the Government lacked confidence that its goal-setting argument (which was, after all, fundamentally flawed) would work at the High Court.

Instead of arguing about goal-setting, the Government now argues that the statute’s use of the term “contract” excludes orders under the Federal Supply Schedule or other multiple award vehicles:

The fact that Section 8127(d) applies by its terms when the VA “award[s] contracts,” and does not refer to “orders,” the FSS, or broader terms like “procurement,” reinforces the inference that Congress intended for Section 8127 to operate in the same fundamental way as the prior small-business contracting preferences upon which it was modeled.  Section 8127(d)’s contracting preference thus applies when the VA solicits and awards contracts on the open market through sealed bidding, negotiated contracting, or simplified acquisition procedures.  It does not apply when the VA places orders under pre-existing government contracts, including the FSS contract at issue in this case.

But does the use of the term “contract” really exclude all orders?  Section 8127(d) does not define a “contract.”  However, the FAR defines a “contract” just a wee bit more broadly than the Government’s brief does:

“Contract” means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements covered by 31 U.S.C. 6301, et seq. For discussion of various types of contracts, see part 16.

FAR 2.101 (emphasis added).

If this broad definition isn’t enough, federal courts and administrative judges have held that an “order” is a “contract” within the meaning of the law.  For example, in Amerescosolutions, Inc., ASBCA No. 56824, 11-1 BCA P 34705 (2011), the Armed Services Board of Contract Appeals closely analyzed–and rejected–the Government’s claim that a delivery order was not a “contract.”  Citing FAR 2.101, federal court decisions, and common law principles, the ASBCA concluded that “the delivery order constitutes a discrete contract . . ..”

It is reasonable to conclude that, in using the word “contract,” Congress intended the term to have the meaning ascribed to that term in the FAR, rather than a much-narrower meaning first discovered by the Government some nine years after the enactment of the statute.  Moreover, the VA’s own regulation implementing Section 8127 does not use the term “contract” to describe the VA’s Rule of Two set-aside obligations.  Instead, VAAR 819.7005 and VAAR 819.7006 both state that the VA “shall set aside an acquisition” for SDVOSBs or VOSBs when the Rule of Two conditions are met.  The Government’s new position seems to contradict the VAAR, in which the VA interpreted the statutory term “contracts” to apply to all “acquisitions.”

The Government’s abandonment of its previously successful goal-setting argument demonstrates that the Government’s position in Kingdomware is, at its core, a conclusion in search of a supporting legal theory.

There is a lot more to discuss about the Government’s brief; my colleagues and I will post a lengthier discussion in the coming days.

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