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Opinion analysis: Unanimous Court hands victory to veterans in contracting dispute

When Congress uses the word “shall,” it intends to create a mandatory obligation. That was the unanimous conclusion of the Supreme Court today in the case of Kingdomware Technologies, a Maryland-based company that provides web, software, and technology services.  The issue before the Court was whether a federal law which provides that, as long as certain conditions are met, the Department of Veterans Affairs “shall award” contracts to small businesses owned by veterans applies every time the department awards contracts.  The federal government had argued that the rule left some room for discretion, but today the Court rejected that argument.  “Shall,” the Court emphasized, was meant as “a command.”

The case dates back to 2012, when the Department of Veterans Affairs awarded a contract for an emergency notification system, which would send information to its employees, to a company that was not owned by a veteran. Kingdomware, which is owned by a U.S. Army veteran who was permanently disabled from an injury that he suffered while serving in 1991’s Operation Desert Storm, challenged the award.  It relied on Section 8127(d) of the Veterans Benefits, Health Care, and Information Technology Act of 2006, which creates a contracting practice known as the “Rule of Two.”  The rule provides that the department’s contracting officers “shall award” contracts to veteran-owned small businesses if two conditions are met: two or more veteran-owned small businesses are likely to submit offers and “the award could be made at a fair and reasonable price that offers best value to the” United States.  The “Rule of Two,” Kingdomware contended, means that the department can only award contracts to businesses that are not owned by veterans if those conditions are not met; otherwise, there is no room for discretion.  After two lower courts ruled in favor of the government, the Supreme Court agreed to weigh in, and today it reversed.

In an opinion by Justice Clarence Thomas, the Court began with an analysis of whether it could review the case at all – a question that had prompted it last fall to postpone the original oral argument and ask for additional briefing from both sides. Under the Constitution, federal courts can only hear cases in which there is an actual “controversy.” And in this case, the contracts that Kingdomware had challenged had long ago been completed. This would normally mean that the Court could no longer hear the case, but the Court agreed that it could do so under an exception for challenges that are “capable of repetition, yet evading review” – that is, disputes that are by their nature sufficiently short-lived that it would be difficult (if not impossible) to fully litigate them before they either disappear or resolve themselves. The Court had already held, it noted, that the two-year period from the contracts’ start to finish does not provide enough time for courts to review whether the contracts complied with the law. And because Kingdomware would likely be able to compete for future contracts, in a process in which the department would be expected to decline to apply the “Rule of Two” unless instructed to do so by the courts, this dispute could repeat itself, without resolution, in the future.

Turning to the substance of Kingdomware’s challenge, the Court emphasized that Congress’s use of the word “shall” was unambiguous. Unless two other exceptions – both of which are even more favorable to veterans than the “Rule of Two” – apply, the department must “use the Rule of Two before awarding a contract to another supplier.”

The Court considered, but was not ultimately persuaded by, the department’s argument that the “Rule of Two” was enacted to ensure that the department met its annual minimums for awarding contracts to veteran-owned businesses; if those goals have been met, the department had contended, the department has the discretion to disregard the “Rule of Two” in awarding contracts. The Court acknowledged that the introduction to Section 8127(d) indicates that Congress enacted the “Rule of Two” “for the purposes of” meeting the department’s annual contracting goals, but it rebuffed any suggestion that the introduction could change “the plain meaning” of the rest of the law.

The Court similarly dismissed the department’s contention that the “Rule of Two” does not apply to orders placed under the Federal Supply Schedule – a program that allows federal agencies to place orders from a list of suppliers for products and services for which the government has already negotiated deals up front. Each time the department places an order under the FSS, the Court reasoned, it creates a new contract – to which the “Rule of Two” applies. The Court was decidedly unsympathetic to the department’s complaint that requiring it to apply the “Rule of Two” whenever it buys anything would “hamper mundane purchases like ‘griddles or food slicers.’” It noted that, as long as the department buys them from a veteran-owned small business, the department can buy less expensive items through the FSS through one of the exceptions to Section 8127(d). Moreover, it added, the department currently uses the FSS to buy all kinds of things “well beyond simple procurement” – including for the acquisition of the sophisticated technology services that gave rise to this case.

In a footnote, the Court made clear that it was not deciding “what sort of search for veteran-owned small businesses the Department must conduct to comply with the Rule of Two.” In other words, is it enough for the department to look for veteran-owned small businesses in the FSS, or does Section 8127(d) require it to “conduct a broader search or such businesses”? But veteran-owned small businesses will likely still regard today’s ruling as a victory that gives them more opportunities to compete for contracts from the Department of Veterans Affairs – which, they would say, is exactly what Congress intended.

Recommended Citation: Amy Howe, Opinion analysis: Unanimous Court hands victory to veterans in contracting dispute, SCOTUSblog (Jun. 16, 2016, 3:27 PM),