Kingdomware Technologies, Inc. v. United States

Kingdomware Technologies, Inc. v. United States

136 S. Ct. 1969 (2016)

Authored by Gesué Staltari

Statement of Facts: On February 22, 2012, the Department of Veterans Affairs (“VA”) procured an Emergency Notification Service from a non-veteran owned small business through its Federal Supply Schedule (“FSS”). The FSS is a streamlined system whereby the General Services Administration negotiates with outside vendors on behalf of government agencies to acquire certain supplies and services in bulk, such as office supplies or food equipment. The VA extended the contract for an additional year, with performance completed in May 2013. Kingdomware Technologies, Inc. (“Kingdomware”), a service-disabled veteran-owned small business, filed a bid protest with the Government Accountability Office (“GAO”) alleging that by awarding the contract to a non-veteran-owned small business, the VA had violated 38 U.S.C. §§ 8127, 8128, commonly known as the Veterans Benefits, Health Care, and Information Technology Act of 2006 (“Act”).

The Act establishes specific goals that encourage contracting with veteran-owned or service-disabled veteran owned small businesses (“VOSBs”, collectively). See id. at § 8127(a). A certain provision of the Act, section 8172(d), also called the “Rule of Two,” provides that the VA “shall award” contracts by restricting competition for the contract to VOSBs if the contracting officer reasonably suspects that at least two of these businesses will submit offers for a fair price that confers the “best value” to the United States. 38 U.S.C. § 8127(d). The Rule of Two operates “[e]xcept as provided in [§ 8127] subsections (b) and (c).” These sub-sections provide that a contracting officer “may” use non-competitive procedures to (1) VOSBs providing for goods or services worth less than $100,000, id. at § 8127(b), and (2) VOSBs providing for goods or services between $100,000 and $5 million if they are “responsible” in performing contract services and the award can be made at a fair and reasonable price. Id. at § 8127(c).

Kingdomware filed a bid protest with the GAO to challenge the VA’s actions. The GAO found in Kingdomware’s favor and issued a non-binding determination with which the VA disagreed. Kingdomware then filed suit in the Court of Federal Claims, seeking declaratory and injunctive relief from the VA’s decision to award the contracts

Procedural History:. The Court of Federal Claims granted summary judgment in favor of the VA. Kingdomware appealed to the Federal Circuit, which affirmed the judgment in a split-decision. The majority found that the Rule of Two was not a mandatory requirement of the Act but applied insofar as the VA had yet to meet the benchmarks in section 8127(a). The Supreme Court granted certiorari.

Question Presented: Whether section 8127(d) requires the VA to apply the Rule of Two in all of its contracting.

Holding: Section 8127(d) categorically requires the VA to apply the Rule of Two, regardless of whether the VA has met the benchmarks in section 8127(a).

Reasoning: Before reaching the merits of the claim, the Court first addressed whether there was a case or controversy over which it would have jurisdiction. As the Court noted, Kingdomware sought injunctive and declaratory relief from Court of Federal Claims but the VA’s suspect procurement ended in May 2013. As such, Kingdomware’s claims would have ordinarily been moot. The Court, however, applied an exception to the mootness doctrine, which operates when (1) the duration of the challenged action is “too short to be fully litigated prior to [its] cessation or expiration” and (2) there is a “reasonable expectation” the claimant will “be subject to the same action again.” Spencer v. Kemma, 523 U.S. 1, 17 (1998). Kingdomware’s case met each of these elements. First, the procurements at issue lasted two years—too short to complete judicial review of their lawfulness. See Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 514–16 (1911). Second, the VA would reasonably be expected to refuse to apply the Rule of Two in other procurements for the kind of services Kingdomware provides. As a result, the claim was not moot.

The Court’s decision on the merits rested on its analysis of the “unambiguous” language of the statute. The Court noted that the Rule of Two operates as a general requirement to which Congress provided two discretionary exceptions, contained within section 8127(b) and (c). For support, the Court contrasted the statute’s use of mandatory language— the word “shall”—in section 8127(d), with the statute’s use of discretionary language—the word “may”—in sub-sections (b) and (c). Moreover, because the statute’s terms were unambiguous, the Court followed the general inference that a statute’s use of both “shall” and “may” supplies different meanings to the words: the former commands while the latter gives permission.

In dicta, the Court addressed several of the Federal Circuit’s justifications for its holdings and the VA’s arguments. First, the Court dismissed as contrary to precedent and anomalous the Federal Circuit’s understanding that the statute’s prefatory language should govern the interpretation of the operative clauses. Kingdomware Technologies, 136 S. Ct. at 1978 (citing Yazoo & Mississippi Valley R. Co. v. Thomas, 132 U.S. 174, 188 (1889)). Second, the VA argued that FSS procedures did not qualify as “contracts” within the meaning of the Act. To the Court, however, FSS procedures and their results fit the ordinary and regulatory definition of the word. Third, the VA claimed that the Court’s holding would be overly burdensome because the VA uses FSS procedures for simplified purchases and should therefore be exempt from the Rule of Two. The Court noted, however, that the VA also uses FSS procedures for complex contracts and purchases, but under the statute it could still use the discretionary exceptions in sub-sections (b) and (c). Finally, the Court dismissed the VA’s argument that its interpretation of the statute merited Chevron deference because the statute’s terms were unambiguous.

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