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Kingdomware Technologies, Inc. v. United States

United States Supreme Court

June 16, 2016


          Argued February 22, 2016


The Veterans Benefits, Health Care, and Information Technology Act of 2006 requires the Secretary of Veterans Affairs to set annual goals for contracting with service-disabled and other veteran-owned small businesses. 38 U.S.C. §8127(a). To help reach those goals, a separate set-aside provision known as the "Rule of Two" provides that a contracting officer "shall award contracts" by restricting competition to veteran-owned small businesses if the officer reasonably expects that at least two such businesses will submit offers and that "the award can be made at a fair and reasonable price that offers best value to the United States." §8127(d). Two exceptions provide that the contracting officer "may" use noncompetitive and sole-source contracts for contracts below specific dollar amounts. §§8127(b), (c).

In 2012, the Department procured an Emergency Notification Service for four medical centers for a one-year period, with an option to extend the agreement for two more, from a non-veteran-owned business. The Department did so through the Federal Supply Schedule (FSS), a streamlined method that allows Government agencies to acquire particular goods and services under prenegotiated terms. After the initial year, the Department exercised its option for an additional year, and the agreement ended in 2013.
Petitioner Kingdomware Technologies, Inc., a service-disabled veteran-owned small business, filed a bid protest with the Government Accountability Office (GAO), alleging that the Department procured multiple contracts through the FSS without employing the Rule of Two. The GAO determined that the Department's actions were unlawful, but when the Department declined to follow the GAO's non-binding recommendation, Kingdomware filed suit, seeking declaratory and injunctive relief. The Court of Federal Claims granted summary judgment to the Government, and the Federal Circuit affirmed, holding that the Department was only required to apply the Rule of Two when necessary to satisfy its annual goals.


1.This Court has jurisdiction to reach the merits of this case. For a federal court to have Article III jurisdiction "an actual controversy must exist . . . through all stages of the litigation." Already, LLC v. Nike, Inc., 568 U.S. __, __. Here, no court is capable of granting petitioner relief initially sought in the complaint because the short-term FSS contracts have been completed by other contractors. However, the controversy is " 'capable of repetition, yet evading review.' " Spencer v. Kemna, 523 U.S. 1, 17. The procurements were fully performed in less than two years after they were awarded, and it is reasonable to expect that the Government will refuse to apply the Rule of Two in a future bid by Kingdomware. Pp. 6–8.
2.Section 8127(d)'s contracting procedures are mandatory and apply to all of the Department's contracting determinations. Pp. 8–12.
(a) Section 8127(d)'s text unambiguously requires the Department to use the Rule of Two before contracting under the competitive procedures. The word "shall" usually connotes a requirement, unlike the word "may, " which implies discretion. Compare Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 35, with United States v. Rodgers, 461 U.S. 677, 706. The use of the word "may" in §§8127(b) and (c) confirms this reading; for when a statute distinguishes between "may" and "shall, " the latter generally imposes a mandatory duty. Pp. 8–9.
(b) Alternative readings of §8127(d) are unpersuasive. First, §8127(d)'s prefatory clause, which declares that the Rule of Two is designed "for the purposes of" meeting §8127(a)'s annual contracting goals, has no bearing on whether §8127(d)'s requirement is mandatory or discretionary. The prefatory clause's announcement of an objective does not change the operative clause's plain meaning. See Yazoo & Mississippi Valley R. Co. v. Thomas, 132 U.S. 174, 188. Second, an FSS order is a "contract" within the ordinary meaning of that term; thus, FSS orders do not fall outside §8127(d), which applies when the Department "award[s] contracts." Third, to say that the Rule of Two will hamper mundane Government purchases misapprehends current FSS practices, which have expanded well beyond simple procurement to, as in this case, contracts concerning complex information technology services over a multiyear period. Finally, because the mandate §8127(d) imposes is unambiguous, this Court declines the invitation to defer to the Department's declaration that §8127 procedures are inapplicable to FSS orders. See Chevron U.S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842–843. Pp. 9–12.

754 F.3d 923, reversed and remanded.


          Thomas Justice

         Petitioner Kingdomware Technologies, Inc., a veteran-owned small business, unsuccessfully vied for a federal contract from the Department of Veterans Affairs to provide emergency-notification services. Kingdomware sued, arguing that the Department violated a federal law providing that it "shall award" contracts to veteran-owned small businesses when there is a "reasonable expectation" that two or more such businesses will bid for the contract at "a fair and reasonable price that offers best value to the United States." 38 U.S.C. §8127(d). This provision is known as the Rule of Two.

         In this case, we consider whether the Department must use the Rule of Two every time it awards contracts or whether it must use the Rule of Two only to the extent necessary to meet annual minimum goals for contracting with veteran-owned small businesses. We conclude that the Department must use the Rule of Two when awarding contracts, even when the Department will otherwise meet its annual minimum contracting goals.


         This case concerns the interplay between several federal statutes ...

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