The United States Supreme Court recently held that the Department of Veteran Affairs' use of the Rule of Two was mandatory—a victory for small businesses and veteran-owned businesses.
The Rule of Two is a provision enacted by Congress in 2006 to encourage federal contracting with service-disabled veteran-owned small businesses (SDVOSBs). It requires the VA to award contracts to SDVOBs when there is a “reasonable expectation” that two or more such businesses will bid for the contract at “a fair and reasonable price that offer best value to the United States.” 38 U.S.C. § 8127(d).
Veteran Affairs initially prevails in GAO bid protest
In the procurement at issue, the VA awarded a contract to a non-veteran owned business under a request for quotations through the Federal Supply Schedule (FSS) system. Kingdomware, a veteran owned business filed a GAO bid protest, which was granted, holding that the VA’s failure to employ the Rule of Two was unlawful and recommended that the VA conduct market research to determine whether there were two veteran-owned businesses that could fulfill the procurement. The VA disagreed with the decision and prevailed in a suit in the Court of Federal Claims, which was affirmed by the Federal Circuit before reaching the U.S. Supreme Court..
Supreme Court ruling turns on use of “may” vs. “shall”
In ruling in favor of the veteran owned business, reversing the Fed. Cir., the S.Ct. held that the Rule of Two is mandatory, not discretionary. The text of the law requests the VA to apply the Rule of Two to all contracting determinations, regardless of whether the VA has met its small business or veteran owned business contracting goals or if the VA has placed an order through the Federal Supply Schedule.
In reaching its decision, the S.Ct. looked at the plain language of the law, noting in other subsections the text used the word “may.” The S.Ct. reasoned that unlike “may,” which implies discretion, “shall” usually connotes a requirement.
The S.Ct.’s reasoning will provide persuasive authority on similar procurement interpretation decisions involving solicitations that use “may” and “shall.” The S.Ct. also rejected the VA’s arguments that FSS orders are not contracts or that FSS orders are only used for simplified acquisitions.
Additionally, even though the underlying contract had been performed, the S.Ct. held that the case was not moot based on an exception for a controversy that is “capable of repetition, yet evading review.”
A victory for small businesses and SVOBs
The S.Ct.’s decision is a victory for small businesses and veteran-owned businesses. Indeed, it is disappointing that the VA would even have fought to restrict the use of VA owned businesses in more procurements.
Any business that may qualify for the additional protections and benefits of being a small business or veteran-owned small business should contact us for assistance in becoming certified by the Small Business Administration or VA.
Joseph M. Goldstein is the Managing Partner of the Fort Lauderdale office of Shutts & Bowen LLP, where he is a member of the Business Litigation Practice Group. Joseph also practices out of the Tallahassee office.
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