O n Monday, February 22, 2016, the Supreme Court heard oral arguments in Kingdomware Technologies, Inc. v. United States , a case that raises the question of whether the Department of Veterans Affairs (VA) is legally required to make certain purchases through a "set aside" for veteran-owned small businesses (VOSBs). A set-aside is a competition in which only eligible small businesses may generally participate. Congress amended the Small Business Act in 1999 to establish goals for the percentage of federal contract dollars awarded to one type of VOSBs: service-disabled veteran-owned small businesses (SDVOSBs). Then, in 2003, it further amended the Small Business Act to grant executive branch agencies—including VA—discretionary authority to set aside contracts for SDVOSBs. However, these enactments were widely seen as ineffective in increasing government contracting with VOSBs, and, in 2006, Congress enacted legislation that required VA specifically to take specified steps to promote awards to VOSBs. It is VA's obligations under this 2006 measure, as amended, that are at issue in Kingdomware , not the provisions of the Small Business Act. The Litigation in Kingdomware

The dispute in Kingdomware centers upon the meaning of the following language from the 2006 act, which is currently codified in Section 8127(d) of Title 38 of the United States Code (hereinafter referred to as Section 8127(d)):
[f]or purposes of meeting [the goals as to contracting with SDVOSBs and VOSBs that the VA is required to establish under the 2006 act], a contracting officer of the Department [of Veterans Affairs] 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. The latter two conditions—that offers are reasonably expected from at least two small businesses and the award can be made at a fair market price—are commonly known as the "Rule of Two" because of the focus upon there being at least two small businesses. VA has taken the position that Section 8127(d) does not preclude it from placing orders through the Federal Supply Schedules (FSS)—which is a simplified method for purchasing commercial items —without consideration or use of a contract set-aside for VOSBs, although its rationale for this position has changed over time. The Federal Circuit Decision

Kingdomware appealed the lower court's decision to the U.S. Court of Appeals for the Federal Circuit, which, on June 3, 2014, by a vote of 2-1, affirmed the decision of the Court of Federal Claims on other grounds. Foremost among these arguments is that VA is generally required to set aside contracts for VOSBs whenever the Rule of Two is satisfied because Section 8127(d) uses the word shall , and shall is the "language of command, not discretion." The government still takes the view that VA's interpretation of Section 8127(d) is entitled to deference. In particular, as a legal matter, it could clarify the application of one or more of the principles of statutory interpretation that the parties, their amici, and lower administrative and judicial tribunals have invoked in attempting to resolve the question of whether Section 8127(d) precludes VA from making purchases through the FSS in situations where a contract could be set aside for VOSBs. The Court's decision could also have practical implications for the manner in which VA conducts certain procurements and for VOSBs seeking to do business with VA pursuant to a small business set-aside. One principle that the Court could explicate is that regarding prefatory material, because the Federal Circuit relied upon Section 8127(d)'s statement that set-asides are to be used "[f]or purposes of meeting" VA's goals for contracting with VOSBs in finding that Section 8127(d) is unambiguous in requiring that VA set aside contracts for VOSBs only "for purposes of meeting [its goals]" as to the percentage of VA contract dollars awarded to VOSBs. However, Kingdomware and its amici have asserted that the principle should be seen to support the view that VA is generally required to set aside contracts for VOSBs whenever the Rule of Two is satisfied.
On Monday, February 22, 2016, the Supreme Court heard oral arguments in Kingdomware Technologies, Inc. v. United States, a case that raises the question of whether the Department of Veterans Affairs (VA) is legally required to make certain purchases through a "set aside" for veteran-owned small businesses (VOSBs). A set-aside is a competition in which only eligible small businesses may generally participate.
Congress amended the Small Business Act in 1999 to establish goals for the percentage of federal contract dollars awarded to one type of VOSBs: service-disabled veteran-owned small businesses (SDVOSBs). Then, in 2003, it further amended the Small Business Act to grant executive branch agencies—including VA—discretionary authority to set aside contracts for SDVOSBs. However, these enactments were widely seen as ineffective in increasing government contracting with VOSBs, and, in 2006, Congress enacted legislation that required VA specifically to take steps to promote awards to VOSBs. It is VA's obligations under this 2006 measure, as amended, that are at issue in Kingdomware, not the provisions of the Small Business Act.
In particular, the Kingdomware case raises the question of how to construe language in the 2006 act which states that, "[f]or purposes of meeting" certain goals for contracting with VOSBs that VA is required to establish under the act (separate and apart from the goals under the 1999 act), VA "shall" set aside contracts for VOSBs whenever the contracting officer reasonably expects offers from at least two VOSBs and the award can be made at a fair market price. The latter conditions are commonly known as the "Rule of Two" because of the focus on there being at least two small businesses.
VA has taken the position that the statutory language does not preclude it from placing orders through the Federal Supply Schedules (FSS)—which is a simplified method for purchasing commercial items—although its rationale for this position has changed over time. However, many VOSBs have disagreed, arguing that the use of the word shall in the 2006 act means that VA is legally required to set aside contracts for VOSBs whenever the Rule of Two is satisfied.
The three administrative and judicial tribunals to have reviewed Kingdomware's challenge to VA's continued use of the FSS despite the alleged requirements of the 2006 act reached differing conclusions or relied upon differing logic. Initially, the Government Accountability Office found that the statute unambiguously requires VA to set aside contracts whenever the Rule of Two is satisfied and that VA's contrary interpretation of the 2006 act is, thus, not entitled to deference. However, the U.S. Court of Federal Claims disagreed, finding that the 2006 act is ambiguous, and VA's interpretation of the act as not applying to orders placed through the FSS is entitled to deference. A majority of the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the lower court but on different grounds. The majority found that the 2006 act unambiguously requires VA to use set-asides for VOSBs only for purposes of meeting its goals for contracting with VOSBs. Once these goals are met, in the Federal Circuit's view, VA has discretion as to whether to use set-asides for VOSBs.
The Supreme Court granted certiorari to resolve the question of VA's obligations under the 2006 act. In doing so, the Court could help clarify the application of certain principles of statutory interpretation relied upon by the lower tribunals and the parties, including principles regarding prefatory language, veterans benefits, and judicial deference to agency interpretations of ambiguous statutes. The Supreme Court's decision could also have practical implications for the manner in which VA conducts certain procurements as well as for VOSBs seeking to do business with VA pursuant to a small business set-aside.