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VA Doesn't Always Have to Get Bids From Veteran-Owned Businesses

By Mark Wilson, Esq. on July 31, 2014 | Last updated on March 21, 2019

In an effort to promote ownership of small businesses by veterans, Congress established a goal of awarding a certain percentage of Veterans Administration contracts to small businesses owned by both veterans and service-disabled veterans. In 2012, the VA chose to use an existing GSA contractor to install emergency notification services in several VA medical centers rather than put out bids for the work to veteran-owned businesses.

Kingdomware, a small business owned by a veteran, filed a complaint, claiming that the VA was required to solicit bids from veteran-owned small businesses before resorting to using an existing GSA contractor. The Court of Federal Claims found for the VA, and Kingdomware appealed.

In Kingdomware v. United States, the Federal Circuit Court affirmed the decision, 2-1.

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It Takes Two

The Rule of Two is a long-standing practice in government purchasing. The government's requirement to solicit bids from outside vendors of a certain type is invoked whenever it can find two or more qualified vendors of that type. In this case, Kingdomware argued that the Rule of Two was triggered because there were two or more veteran-owned small businesses that could perform the work, meaning the VA had to solicit bids, and even then, only from veteran-owned businesses.

The Federal Circuit, agreeing with the logic of the Court of Federal Claims, rejected that argument. If the bidding process were invoked in every case, it said, then it wouldn't make sense that Congress had to set goals -- that is, aspirations -- for awarding contracts to small businesses owned by veterans, as the awards would be mandatory every time. Rather, a government agency can choose to use a GSA contractor or not.

The Federal Circuit also agreed with the VA that requiring bidding in every instance where the Rule of Two was satisfied would deprive the VA of discretion in awarding contracts, which is not what Congress intended.

The Dissent

Judge Jimmie Reyna dissented, arguing exactly the opposite. Under his reading of the Veterans Act, the VA didn't have discretion to choose an existing contractor and instead had to conduct a Rule of Two analysis. The majority considered clarifying language that the Rule of Two applied "for purposes of meeting the goals under [the Act]" to be crucial to understanding that the statute's mandatory language did not stand alone, but was part of a larger scheme aimed at reaching the aspirational goal of employing a certain percentage of veteran-owned contractors. Judge Reyna, however, interpreted this language to be merely "prefatory" and not part of the mandatory language of the rest of the statute.

The majority opinion probably does not gut the Veterans Act, as Judge Reyna suggested in his dissent. The majority itself used some clarifying language to conclude that the VA's actions were perfectly OK -- so long as it was otherwise meeting its goals for awarding contracts to veteran-owned small businesses.

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