Kingdomware Technologies, Inc. v. United States of America (14-916)

Issues 

Does the Veterans Act of 2006 allow the Department of Veterans Affairs discretion in deciding whether to award a contract to a veteran-owned business?

Oral argument: 
February 22, 2016

The Supreme Court will consider whether the 2006 Veterans Act (the “Veterans Act”) always requires the Department of Veteran Affairs (the “VA”) to award its contracts to veteran-owned small businesses. See Brief for Petitioner, Kingdomware Technologies, Inc. at i. Kingdomware, a veteran-owned small business, maintains that the language, purpose, and history of the Veterans Act verify that the requirement is mandatory. See Brief for Petitioner at 28. The United States, as respondent, maintains that the Veterans Act’s contract-awarding procedure does not apply when the VA places orders under pre-existing Federal Supply Schedule contracts. See Brief for Respondent, United States of America at 25. Further, the United States asserts that the VA’s interpretation of the Veterans Act is reasonable and warrants judicial deference. See Brief for Respondent at 47. The Court’s decision in this case could significantly affect the business opportunities available to veterans and the VA’s ability to provide efficient and cost-effective services. See Brief of Amici Curiae National Veteran Small Business Coalition et al. (“NVSBC”), in Support of Petitioner at 12; see Brief for Respondent at 39.

Questions as Framed for the Court by the Parties 

Did the Federal Circuit err in construing the 2006 Veterans Act's mandatory set-aside restricting competition for Department of Veterans Affairs’ contracts to veteran-owned small businesses as discretionary?

Facts 

In January 2012, the Department of Veteran Affairs (“VA”) decided to obtain an Emergency Notification System (“ENS”) for several of its medical centers and outpatient clinics. Kingdomware Techs., Inc. v. United States, 107 Fed. Cl. 226, 235 (Fed. Cl. 2012). The VA contracting officer used the Federal Supply Schedule (“FSS”) to identify possible vendor sources for the ENS, and awarded the contract to a vendor that was not a veteran-owned small business (“VOSB”). Id. at 236. On March 14, 2012, Kingdomware Technologies, Inc. (“Kingdomware”), a certified service-disabled veteran-owned small business (“SDVOSB”), filed a bid protest with the Government Accountability Office (“GAO”). Id. Kingdomware argued that the VA violated the 2006 Veterans Act by not first setting aside the contract for limited competition among VOSBs and SDVOSBs before using the FSS. Id.

On March 15, 2012, Kingdomware filed a complaint in the United States Court of Federal Claims. Kingdomware Techs., Inc. v. United States, 107 Fed. Cl. 226, 236 (Fed. Cl. 2012).  On May 30, the GAO sustained Kingdomware’s earlier bid protest, recommending that the VA cancel the contract award and reopen it for limited competition among SDVOSBs. Id. However, the VA announced that it would not follow the GAO’s recommendation. Id. On November 27, the Court of Federal Claims granted summary judgment in favor of the VA. See id. at 244. The Court of Federal Claims found ambiguity in the language of the 2006 Veterans Act, finding that one could reasonably read the contracting goals mentioned in the statute to limit the phrase “shall award,” and thus granted deference to the VA’s interpretation of the statute. See id. at 241, 243.

Kingdomware appealed to the United States Court of Appeals for the Federal Circuit. Kingdomware Techs., Inc. v. United States, 754 F.3d 923 (Fed. Cir. 2014). Kingdomware argued that the phrase “shall award” is mandatory and dictates that the VA must ensure that there is not a reasonable expectation that two or more VOSBs would submit fair and reasonable bids (the “Rule of Two”) before it can use the FSS. Id. at 931. Kingdomware claimed that the legislative history of the 2006 Veterans Act supported its interpretation, since the statute was passed following the VA’s failure to meet the permissive standards of the VOSB contracting goals of the 1999 and 2003 Acts. Id. Finally, Kingdomware argued that the clause reading “for purposes of meeting the goals of subsection (a)” had no limiting effect on the application of the Rule of Two. Id. at 932. However, the Federal Circuit found that the 2006 Veterans Act explicitly referred to the VA’s contracting goals, and concluded that the command term “shall” only applied “for purposes of meeting” these goals. See id. at 933. The court further reasoned that since the VA had both set goals and met them, the VA was not under an obligation to set aside the contracts for VOSBs. See id. at 934. Accordingly, on June 3, 2014, the Federal Circuit affirmed the decision of the Court of Federal Claims in favor of the VA. See id. Kingdomware subsequently petitioned the Supreme Court for a writ of certiorari, which the Court granted on June 22, 2015. Brief for Petitioner at 4.

Analysis 

In this case, the United States Supreme Court is presented with the opportunity to determine whether the VA can interpret § 8127 of the 2006 Veterans Act (the “Act”) to require that the VA give preference to VOSBs only when the VA seeks to award a new contract to a supplier, as opposed to seeking to fill an order with a supplier who has a pre-existing Federal Supply Schedule (FSS) contract.  See Brief for Petitioner at i.  Kingdomware insists that the plain language of the Act mandates that the VA give preference to VOSBs when placing orders, regardless of whether it does so under a new contract or a pre-existing FSS contractSee id. at 28–30, 48.  The United States counters by asserting a distinction between “awarding contracts” and “placing orders,” and posits that the Act requires the VA to show contracting preference to VOSBs when it seeks to procure goods and/or services under the former, which entails creating a new contract, as opposed to the latter, which is done using FSS suppliers.  See Brief for Respondent at 25–27. 

LEGISLATIVE HISTORY AND INTENT

Kingdomware opines that the Act was intended to ameliorate shortcomings of the Act’s predecessors, namely, the 1999 Veterans Act and the 2003 Veterans ActSee Brief for Petitioner at 30.  Kingdomware contends that these acts were intended to increase opportunities for veterans, but were ineffective because the preference for veterans outlined in these acts was discretionary, not mandatory, and did not provide for any means of enforcement.  See id.  Thus, according to Kingdomware, Congress promulgated the Act, which applies exclusively to the VA and makes contracting preferences for veteran-owned small businesses mandatory, not discretionary. See id.

The United States disagrees with Kingdomware’s interpretation of legislative intent and asserts that Congress, while intending to make changes to the previous Veterans Acts of 1999 and 2003, did not intend those changes to be as radical as Kingdomware maintains.  See Brief for Respondent at 25–26.  The United States cited Bragdon v. Abbot in support of its view (See id. at 26; Bragdon v. Abbot, 524 U.S. 624, 645 (1998)), arguing that in Bragdon the Supreme Court found that when the meaning of existing statutory language is settled by administrative and judicial interpretation, the same language used in a new statute is a general indication that Congress intended to incorporate those interpretations.  See Brief for Respondent at 26. In citing Bragdon, the United States contends that the previous acts were long understood to apply only to new contracts, not pre-existing FSS contracts. See id. Accordingly, the United States maintains that the Act, while making contracting preference for VOSBs an obligation and not an option, was limited in scope to new contracts, not pre-existing FSS suppliers.  See id. at 26–27.

STATUTORY LANGUAGE AND CONSTRUCTION

Kingdomware also contends that the plain language of § 8127(d) of the Act is unambiguous and clearly indicates that the VA must show preference to veteran-owned small businesses by the statute’s use of the words “. . . shall award contracts. . .”  See Brief for Petitioner at 28–29.  Kingdomware focuses on the contrasting use of the word “may” to denote grants of discretion in other sections of the statute as support for the clear mandate given by the word “shall.”  See id. at 29–30.  Furthermore, Kingdomware insists that any reading of the language following “shall” that transforms its mandatory meaning into a discretionary one is improper and unworkable.  See id. at 30.  In the decision now being appealed, the Second Circuit ruled in favor of the United States on the grounds that § 8127(d), by using the word “shall,” mandates that the VA show preference for VOSBs, but in language directly following, limits this mandate to situations where the VA decides that it must do so for purposes of meeting certain self-defined goals as defined in preceding subsection (a).  See id. at 30–31. It is with this reasoning that Kingdomware asserts that the language following the mandate in § 8127(d) was meant simply to illustrate the purpose of § 8127(d), not to limit its scope or transform a command into a choice.  See id. at 31. 

The United States, on the other hand, while agreeing that the word “shall” is mandatory language, focuses on the words “shall award contracts” to conclude that § 8127’s mandate does not apply to FSS orders.  See Brief for Respondent at 24, 27.  The United States argues that 15 U.S.C. 644, which applies to all small-business preference categories (not just VOSBs) and to all federal agencies (not just the VA) clearly distinguishes between “contracts” and “orders,” the former referring to agreements to procure goods/services, and the latter referring to individual procurements under pre-existing contracts.  See id. at 28–29.  Therefore, according to the United States, because § 8127 specifically uses the word “contracts,” it applies only to new procurement agreements, and not to “orders” which are filled against pre-existing FSS contracts.   See id. at 30.  The United States also points out that, given the structure of § 8127, failure to read the goal-setting language in subsection (d) as modifying the “shall” mandate would render the goal-setting directed by subsection (a) irrelevant.  See id. at 32–33.

VETERANS CANON                           

The veterans canon is a canon of statutory construction that is used to resolve any ambiguities in laws regarding benefits to veterans in the veterans’ favor.  See King v. St. Vincent’s Hosp., 502 U.S. 215, 220–21 (1991); Brown v. Gardner, 513 U.S. 115, 117–18 (1994); Fishgold v. Sullivan Drydock & Repair Corp., 328 U.S. 275, 285 (1946). Kingdomware relies on the veterans canon in arguing that the ambiguity in § 8127 requires that the Rule of Two be mandatory. See Brief for Petitioner at 43.  Kingdomware argues that the veterans canon is applicable because assistance for veterans in creating and operating small businesses is an established “veterans’ benefit.” See id. at 44.  In the event that the Court finds the 2006 Veterans Act not a benefits statute, Kingdomware explains that, per King, the veterans canon is not limited to provisions that involve direct government benefits.  See id.  Thus, Kingdomware contends, the veterans canon applies in this case, and § 8127 should be liberally construed in favor of veterans by mandating the VA to show preference to VOSBs for all procurements.  See id.

The United States counters that Kingdomware has failed to identify any case in which the veterans canon applies to government contracting.  See Brief for Respondent at 46.  The United States further argues that the canon is also inappropriate in this case because liberally construing Section 8127(d) to mandate VOSB preference for all contracts, whether new or pre-existing, would require balancing "competing interests of different classes of veterans."  See id. First, the United States contends, applying VOSB preference for all transactions, even FSS orders, would cause significant delays and additional costs that would impede the VA’s ability to provide benefits and care to the veterans it serves.  See id.  Furthermore, the United States asserts that mandating VOSB preference across the board would require the VA to choose between VOSBs that are on the FSS and those that are not.  See id.  Finally, according to the United States, application of the veterans canon here would also be inappropriate because it cannot override judicial deference to an agency’s appropriate interpretation of statutory ambiguity.  See id. at 47.

CHEVRON DEFERENCE

According to Kingdomware, the Court, in applying the Chevron framework, should find that § 8127 is not ambiguous because the text, purpose, and history of the Act clearly show that the VA is required to show contracting preference to VOSBs, regardless of whether the procurement contracts are new or are pre-existing under the FSS.  See Brief for Petitioner at 45.  Chevron deference is a two-step framework in which courts defer to agency interpretations of federal statutes when the statute is ambiguous and the agency interpretation is not unreasonable.  See Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837, 842 (1984).  Thus, according to Kingdomware, the Court is not obligated to defer to the VA’s interpretation of the statute, and should therefore find in favor of Kingdomware.  See Brief for Petitioner at 45. 

The United States counters that the Court, in applying the Chevron framework, should find that  § 8127 is not ambiguous inasmuch as the statutory history and language indicate that the mandated VOSB contracting preference applies only to new contract “awards,” and not to pre-existing contract “orders” under the FSS.  See Brief for Respondent at 47.  The United States adds that, in the event the Court finds that the statute is ambiguous and does not clearly favor either the United States’ or Kingdomware’s interpretation, Chevron deference applies and the Court must defer to the VA’s interpretation of § 8127.  See id.

Discussion 

This case presents the Supreme Court with an opportunity to decide whether the 2006 Veterans Act (the “Veterans Act”) requires the Department of Veterans Affairs (the “VA”) to set aside all contracts that satisfy the Rule of Two for limited competition between VOSBs. See Brief for Petitioner, Kingdomware Technologies, Inc. at i. Kingdomware argues that the language, purpose, and history of the 2006 Veterans Act confirm that the Act’s requirement that the VA satisfy the Rule of Two before offering contracts to non-VOSBs is mandatory. See Brief for Petitioner at 28. The United States responds that the Act’s procedure for awarding contracts does not apply when the VA places orders under pre-existing FSS contracts. See Brief for Respondent at 25, 47. The Court’s decision in this case may have a substantial impact on the contracting opportunities available to veterans and the ability of the VA to provide benefits and care to veterans. See Brief of “NVSBC” at 12-13; see Brief for Respondent at 39.

CONTRACTING OPPORTUNITIES AVAILABLE TO VETERANS

The American Legion, in support of Kingdomware, argues that granting the VA discretion in awarding contracts will cost millions of veterans the benefits their country owes them for their service. See Brief of Amicus Curiae The American Legion, in Support of Petitioner at 21. The American Legion contends that the VA’s use of the FSS to purchase goods and services diverts up to $10 billion in contracts away from veterans each year. See id. The Iraq and Afghanistan Veterans of America (“IAVA”), in support of Kingdomware, argue that the 2006 Veterans Act plays a vital role in reintegrating veterans into society, and maintains that obtaining employment is the most challenging aspect of returning to civilian life for a veteran. See Brief of Amicus Curiae Iraq and Afghanistan Veterans of America, in Support of Petitioner at 6. The IAVA explains that the reluctance of federal agencies like the VA to award federal contracts to VOSBs is part of the reason why veterans have trouble running small businesses. See id. at 8-9.

The United States contends that Kingdomware and supporting amici interpret the Veterans Act in a way that would result in significant delay, additional cost, red tape, and risk for the VA, in exchange for limited and uncertain additional benefits for VOSBs.  See Brief for Respondent at 42–43. The United States argues that the benefits of a mandatory Rule of Two for VOSBs are limited and uncertain. See id. at 42. The United States claims that the VA places enough FSS orders with VOSBs (13% of total VA spending in 2011), many of whom already have FSS schedule contracts, to exceed its contracting goals. See id. The United States further argues that the mandatory set-aside would be particularly useless where the VA would have found a VOSB through the FSS without going through the Rule of Two assessment. See id. 

THE VA’S ABILITY TO PROVIDE EFFICIENT AND COST-EFFECTIVE SERVICES

The National Veteran Small Business Coalition (“NVSBC”) and fellow amici, in support of Kingdomware, contends that Federal Circuit’s interpretation of the Veterans Act would significantly disrupt the VA’s everyday operations, and argues that allowing the VA discretion to use the Rule of Two when its contracting goals have been met will create confusion for the VA and its customers by giving the VA discretion where the Veterans Act’s plain meaning gives a mandate. See Brief of NVSBC at 17–18. NVSBC explains that before every procurement decision, a VA contracting officer will need to make a determination of the VA’s progress toward its annual contracting goals, and contends that there is no evidence to suggest that such a determination is possible. See id. at 19.  NVSBC maintains that this process will actually prove more cumbersome for the VA than requiring a Rule of Two determination. See id. at 22.

The United States argues that requiring a Rule of Two determination for goods and services it normally acquires through the FSS would cause a significant disruption of the VA’s everyday operations. See Brief for Respondent at 39–40. It reasons that a Rule of Two determination for tens of thousands of procurements would be a remarkable burden, and would force the VA to hire several additional contracting officers while delaying their acquisition of important goods and services. See id. at 40. Delays of important goods like medical supplies, the United States argues, could end up harming the veterans the VA serves. See id. at 41. Finally, the United States argues that its use of the FSS keeps costs down for the VA and its customers by saving the VA from administrative expenses associated with the traditional procurement process and by preventing “fiscal waste” caused by “disruption, overhead, and delay.” Id. at 40, 42.

Conclusion 

In this case, the Supreme Court has the opportunity to determine whether § 8127 of the 2006 Veterans Act requires that the VA give contracting preference to veteran-owned small business only when awarding a new contract, as opposed to ordering under a pre-existing Federal Supply Schedule (FSS) contract. See Brief for Petitioner at i. The Court will first consider whether the plain language of the statute unambiguously mandates VOSB preference for either all procurement contracts, including FSS orders, or new contracts only.  See id. at 44–45.  If the Court determines that the statute is ambiguous, it must then decide whether deference to the VA’s interpretation of the law is warranted under Chevron or some under statutory canon.  See Brief for Respondent at 47, 50.  The Court’s decision in this case could significantly affect the business opportunities available to veterans and the Department of Veteran Affairs’ ability to provide efficient and cost-effective services. See Brief of NVSBC at 12; see Brief for Respondent at 39.

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