With a new year upon us, large questions remain unanswered in the government contracting small business community. The Supreme Court’s recent June 16, 2016 unanimous ruling in Kingdomware Technologies, Inc. v. United States may have serious implications for small businesses across the entire federal contracting marketplace and the use of Federal Supply Schedules (FSS). The Kingdomware case involved a service-disabled, veteran-owned small business (SDVOSB) who challenged the U.S. Department of Veteran Affairs (VA) and their interpretation of a law that requires the VA to set aside all procurement opportunities if at least two veteran-owned small business were qualified to compete and perform the requirements (See Veterans Benefits, Health Care, and Information Technology Act of 2006, 38 U.S.C. §§ 8127-8128, also known as the VA Act). The original protest, decided on by the Government Accountability Office (GAO) in 2012, concluded that VA was unlawful in their position and actions not employing the “rule of two.” The VA defended their actions by suggesting that FSS awards are not “contracts,” and thus inapplicable to the purview of the VA Act. The Supreme Court ruling, a reversal of the lower courts’ decision, found that VA must use the “rule of two” for FSS awards even if VA has already met its small business goals, focusing on the legislation’s use of the word “shall,” as opposed to “may.” Furthermore, the Court also ruled that FSS awards are considered to be contracts. The Supreme Court’s decision marks an important win for SDVOSBs and VOSBs alike, while simultaneously raising several unanswered questions regarding the use of FSS outside of the VA.
The “rule of two,” codified in the Small Business Act and further implemented in FAR 19.502-2 Total small business set-asides, requires the Government to set aside nearly all actions between $3,500 and $150,000 exclusively for small businesses, and for requirements above $150,000, as long as there is a reasonable expectation for two or more small business concerns to submit competitive offers. Before the Supreme Court decision, VA had argued that the VA Act didn’t apply to FSS actions, which the GAO struck down, as explained above. However, the GAO previously maintained that the “FSS program expressly excludes FSS purchases from the set-aside requirements in FAR Part 19.” The Kingdomware decision casts doubt on this position and also presents the case for possible departmental-level deviations from the FAR in order to comply with the Supreme Court’s decision. The VA has already issued a class deviation to comply with the Court’s decision.
The Small Business Administration (SBA) jumped into the fray in October 2016 with a memo issued by John Shoraka, SBA’s Associate Administrator of Government Contracting and Business Development, to all Procurement Center Representatives (PCR). The memo provides guidance in light of the Supreme Court decision that the Court’s rationale should be applied to similarly worded statues, which includes the Small Business Act. In other words, the SBA believes that the Small Business Act, specifically Section 15(j), does apply to FSS orders and that the “rule of two” should be applied in those cases as well. This now creates a strange disconnect between the statutes (Small Business Act, VA act), the regulations (FAR, and department-specific supplements), judicial precedent (Kingdomware ruling, GAO cases, etc.), and agency-level policies and procedures. Barring definitive legislative action to clear up this confusion, this will likely be resolved using lawsuits in the courts and through protests with GAO in the coming weeks and months. If the position of the SBA is adopted by the General Services Administration (GSA), the Office of Federal Procurement Policy (OFPP), and other key acquisition decision-makers, this could have major implications for small business in the form of more set-aside actions and a larger share of overall FSS spending.