Kingdomware Technologies, Inc. v. United States , 754 F.3d 923 ( 2014 )

United States Court of Appeals
for the Federal Circuit
______________________
KINGDOMWARE TECHNOLOGIES, INC.,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
______________________
2013-5042
______________________
Appeal from the United States Court of Federal
Claims in No. 12-CV-0173, Judge Nancy B. Firestone.
______________________
Decided: June 3, 2014
______________________
LAUREN B. FLETCHER, Wilmer Cutler Pickering Hale
and Dorr LLP, of Washington, DC, argued for plaintiff-
appellant. With her on the brief were AMY K. WIGMORE,
GREGORY H. PETKOFF, AMANDA L. MAJOR, JOSEPH GAY,
and CARLA J. WEISS, of Washington, DC.
ROBERT C. BIGLER, Trial Attorney, Commercial Litiga-
tion Branch, Civil Division, United States Department of
Justice, of Washington, DC, argued for defendant-
appellee. With him on the brief were STUART F. DELERY,
Assistant Attorney General, BRYANT G. SNEE, Acting
Director, and PATRICIA M. MCCARTHY, Assistant Director.
2 KINGDOMWARE TECHNOLOGIES, INC. v. US
GENE C. SCHAERR, Winston & Strawn LLP, of Wash-
ington, DC, for amicus curiae American Legion. With him
on the brief was EIMERIC REIG-PLESSIS.
______________________
Before PROST, Chief Judge, ∗ CLEVENGER, and REYNA,
Circuit Judges.
Opinion for the court filed by Circuit Judge CLEVENGER.
Dissenting opinion filed by Circuit Judge REYNA.
CLEVENGER, Circuit Judge.
This is an appeal from the final judgment of the Unit-
ed States Court of Federal Claims (“Court of Federal
Claims”) on a matter of statutory construction. The Court
of Federal Claims ruled in favor of the United States,
Kingdomware Techs., Inc. v. United States, 107 Fed. Cl.
226 (Fed. Cl. 2012), and Kingdomware Technologies, Inc.
(“Kingdomware”) appeals. For the reasons set forth below,
we affirm the final judgment of the Court of Federal
Claims.
I
Kingdomware is owned and controlled by a service-
disabled veteran. The Department of Veterans Affairs
(“VA”) certified Kingdomware as a service-disabled veter-
an-owned small business in September 2010 and re-
certified Kingdomware in September 2012.
It has long been the policy of the United States to
promote small businesses, including small businesses
owned and controlled by veterans. Congress has ex-
pressed this policy through the Small Business Act, 15
U.S.C. ch. 14A, and stated its expectation that small
∗
Sharon Prost assumed the position of Chief Judge
on May 31, 2014.
KINGDOMWARE TECHNOLOGIES, INC. v. US 3
businesses generally will receive “a fair proportion of the
total purchases and contracts for property and services for
the Government . . . .” 15 U.S.C. § 644(a)(3). Veteran-
Owned Small Businesses (“VOSBs”) and Service-Disabled
Veteran-Owned Small Businesses (“SDVOSBs”) are
expressly recognized in the Small Business Act. Id.§ 632(q).
The policy directive to promote small businesses lies
within the statutes and regulations that guide Govern-
ment contract formation. The general policies and proce-
dures for Government contracting are contained in the
Federal Acquisition Regulation (“FAR”), 48 C.F.R. ch. 1,
which implements the Office of Federal Procurement
Policy Act of 1974, 41 U.S.C. ch. 7. Certain agency-specific
contract regulations are established agency by agency,
and contract regulations specific to the VA are stated in
the Veterans Affairs Acquisition Regulation (“VAAR”), 48
C.F.R. ch. 8.
The overarching policy of the FAR generally demands
that “[c]ontracting officers shall provide for full and open
competition.” 48 C.F.R. § 6.101(b). The Federal Supply
Schedule (“FSS”) exists as one of the tools for achievement
of the overarching policy. The FSS was established by the
General Services Administration (“GSA”) to provide
Government agencies with a “simplified process for ob-
taining commercial supplies and services at prices associ-
ated with volume buying.” Id. § 8.402(a). FSS contractors
agree to provide goods and services on the FSS at stated
prices for given periods of time, thus permitting agencies
to buy supplies and services directly from the FSS, rather
than using traditional full and open competition contract
tools for such purposes. FSS contracts are deemed to
satisfy the conditions of full and open competition. Id.
§ 8.404(a).
Unless otherwise specified by statute or regulation, an
agency has wide discretion to decide the method of con-
4 KINGDOMWARE TECHNOLOGIES, INC. v. US
tracting to use, including the FSS. Tyler Constr. Grp. v.
United States, 570 F.3d 1329, 1334 (Fed. Cir. 2009). The
FAR specifies as a matter of contracting priority that an
agency is encouraged to obtain goods and services from
FSS contractors before purchasing from commercial
sources, which include privately owned VOSBs and
SDVOSBs. 48 C.F.R. § 8.004. The GSA considers its FSS
program to be “the premier acquisition vehicle in govern-
ment,” accounting for 10% of overall procurement spend-
ing. For Vendors – Getting on Schedule, GENERAL
SERVICES ADMINISTRATION (May 29, 2014),
http://www.gsa.gov/portal/content/198473.
The FAR explicitly states that an agency placing an
order against the FSS is exempt from requirements of the
small business set-aside programs under FAR part 19.
See 48 C.F.R. §§ 8.404(a), 8.405-5(a), 19.502-1(b). This
exemption does not affect the VA’s obligation under 48
C.F.R. § 19.502-1(a) otherwise to set aside contracts for
competition among small businesses. “Although GSA
awards most [FSS] contracts, it may authorize other
agencies to award schedule contracts and publish sched-
ules.” Id. § 38.101(d). GSA has specifically delegated
authority to the VA to procure medical goods and services
under the VA Federal Supply Schedule Program. Id. §
38.000. For other goods and services, the VA uses the
GSA FSS program. As a matter of policy, the VA encour-
ages VOSBs and SDVOSBs to participate in the FSS
program. Press Release, Dept. of Veterans Affairs, State-
ment on VA Veteran-Owned Small Business Contract
(Oct. 28, 2011). Purchasing goods and services through
the FSS is important to the VA and to VOSBs: in 2011,
the VA used FSS contracts for 20% of its total spending,
and 13% of these FSS expenditures went to VOSBs.
Kathleen Miller, Dispute Simmers Between VA and Veter-
an-Owned Small Businesses, WASH. POST, Nov. 14, 2011,
at A20.
KINGDOMWARE TECHNOLOGIES, INC. v. US 5
II
In 1999, Congress amended the Small Business Act to
establish an aspirational Government-wide goal of award-
ing 3% of Government contracts to SDVOSBs. 15 U.S.C.
§ 644(g). History shows this 3% goal was not satisfied. For
the 2001 fiscal year, SDVOSBs received but 0.24% of
federal contract funds. The State of Veterans’ Employ-
ment: Hearing Before the H. Comm. on Veterans Affairs,
108th Cong. 92 (2003) (statement of Angela B. Styles,
Adm’r Fed. Procurement). And the VA awarded only 0.1%
of its contracts to SDVOSBs in 2000, 0.2% in 2001, and
0.6% in 2002. H.R. 1460, The Veterans Entrepreneurship
Act of 2003; H.R. 1712, The Veterans Federal Procurement
Opportunity Act of 2003; and H.R. 1716, The Veterans
Earn and Learn Act: Hearing Before the Subcomm. on
Benefits of the H. Comm. on Veterans Affairs, 108th Cong.
9 (2003) (statement of Leo Mackay, Deputy Sec’y of Vet-
erans Affairs).
Congress again amended the Small Business Act in
2003 to focus on SDVOSBs. The 2003 Act grants discre-
tionary authority (“a contracting officer may award”) to
contracting officers, Government-wide, to award sole-
source contracts of restricted dollar amounts to SDVOSBs
when the contracting officer estimates receipt of a fair
and reasonable price, and otherwise to award contracts on
the basis of competition restricted to SDVOSBs “if the
contracting officer has a reasonable expectation that not
less than 2 small business concerns owned and controlled
by service-disabled veterans will submit offers and that
the award can be made at a fair market price.” 15 U.S.C.
§ 657f. The discretionary authority to award contracts
beyond the limited dollar amount specified for sole-source
contracts requires satisfaction of the Rule of Two, a pro-
cedure well-known throughout the Government in connec-
tion with award of contracts set aside for competition
restricted to small businesses.
6 KINGDOMWARE TECHNOLOGIES, INC. v. US
History again showed a failure to achieve the goal of
the Small Business Act to award 3% of Government
contacts to SDVOSBs: only 0.605% of Government con-
tracts went to SDVOSBs in 2005. H.R. REP. NO. 109-592,
at 16 (2006) (“H.R. REP.”). Consequently, in 2006 Con-
gress returned to the subject of preferences for businesses
owned and controlled by veterans, enacting a statute
specifically and only directed to the VA. While the Small
Business Act and previous amendments contained provi-
sions relating only to SDVOSBs, the 2006 Veterans Act
expanded the reach of the small business provisions to
include both VOSBs and SDVOSBs.
In particular, Congress mandated that the Secretary
of the VA “shall” establish a goal for each fiscal year for
participation in VA contracts by VOSBs, and “shall”
establish a goal for participation in VA contracts by
SDVOSBs which “shall not be less” than the Government-
wide goal set by the Small Business Act, which remained
at 3%. 38 U.S.C. § 8127(a).
The Veterans Act of 2006, codified at 38 U.S.C.
§ 8127, gives contracting officers in the VA certain specific
tools in subsections (b), (c), and (d) for achieving the goals
to be set by the Secretary. As the House Report accompa-
nying the statute explained: “[g]iven this new set of
acquisition tools, there should be no reason for VA not to
meet the veteran and service-disabled veteran small
business contracting goals.” H.R. REP., at 16.
For VA acquisitions for amounts less than what is
called the simplified acquisition threshold (currently
$150,000), § 8127(b) states that “a contracting officer [of
the VA] may use procedures other than competitive
procedures.” Contracts under $150,000 can thus be sole-
sourced to VOSBs and SDVOSBs without regard to the
marketplace competitiveness of the price. Second, for
contracts worth $150,000 up to $5,000,000, VA contract-
ing officers “may” use procedures other than competitive
KINGDOMWARE TECHNOLOGIES, INC. v. US 7
procedures to grant sole-source contracts to VOSBs and
SDVOSBs if the particular business concern (1) “is deter-
mined to be a responsible source with respect to perfor-
mance of such contract opportunity”; and (2) “in the
estimation of the contracting officer, the contract award
can be made at a fair and reasonable price that offers best
value to the United States.” 38 U.S.C. § 8127(c). The
authority given to VA contracting officers in subsections
(b) and (c) of § 8127 is expressly “for purposes of meeting
the goals under subsection (a).” Third, Congress also
authorized use of restricted competition procedures by VA
contracting officers. Thus, in addition to the non-
competitive methods authorized in subsections (b) and (c),
Congress specified as follows in subsection (d):
(d) USE OF RESTRICTED COMPETITION. –
Except as provided in subsections (b) and (c), for
purposes of meeting the goals under subsection
(a), and in accordance with this section, a con-
tracting officer of the [VA] shall award contracts
on the basis of competition restricted to small
business concerns owned and controlled by veter-
ans if the contracting officer has a reasonable ex-
pectation 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.
Id. § 8127(d) (reciting the Rule of Two within the “if”
clause).
As an assist for achieving the goals under subsection
(a), Congress ordered the VA in subsection (i) to give
contracting priority to SDVOSBs and VOSBs over other
small business entities. Id. § 8127(i). Thus, SDVOSBs and
VOSBs enjoy primary opportunities over other small
businesses.
8 KINGDOMWARE TECHNOLOGIES, INC. v. US
The VA promulgated regulations for § 8127(d). Unlike
that subsection, which does not distinguish between
VOSBs and SDVOSBs, the VA provided a separate regu-
lation for each group, repeating in each regulation the
statutory language that the contracting officer shall
award contracts according to the Rule of Two. 48 C.F.R.
§ 819.7005 (providing for SDVOSBs); § 819.7006 (provid-
ing for VOSBs). The regulations further specify that
contracting officers must give preference to SDVOSBs
over VOSBs, and if only one SDVOSB makes an offer at a
fair and reasonable price, the contracting officer “should
make” the award to that offeror (thus converting the Rule
of Two to a Rule of One). Id. § 819.7005. If no acceptable
offer is made by a SDVOSB, the contracting officer “shall”
withdraw the SDVOSB set-aside and process the pro-
curement as a VOSB set-aside. Id. If only one VOSB
makes a fair and reasonable price offer, the contract
officer “should make” the award to that offeror, and if no
acceptable offer is made, the contracting officer “shall”
process the procurement under other small business set-
aside programs. Id. § 819.7006. In the preamble to the
regulations, the VA expressed its view that 38 U.S.C.
§ 8127(d) “does not apply to FSS task or delivery orders”
and that the VA would “continue to follow GSA guidance
regarding applicability of 48 CFR part 19 of the FAR,
Small Business Programs, which states that set-asides do
not apply to FAR part 8 FSS acquisitions.” 74 Fed. Reg.
64,619, 64,624 (Dec. 8, 2009). In practice, the VA has
continuously and consistently interpreted § 8127(d) as not
affecting its authority to place orders under the FSS, and
as granting it the flexibility to achieve the subsection (a)
goals by any of the three § 8127 methods.
History has proven true the prediction made in the
legislative history of § 8127. The 2006 Act did not become
effective until 180 days after its enactment on December
22, 2006, and as a result was not fully implemented until
the 2008 fiscal year. For that year and thereafter, the
KINGDOMWARE TECHNOLOGIES, INC. v. US 9
Secretary set goals well beyond the previous 3% Govern-
ment-wide goal for SDVOSBs, and achieved well beyond
his stated goals, as shown below.
Year VOSB VOSB SDVOSB SDVOSB
Goal Attainment Goal Attainment
2008 10% 14.89% 7% 11.78%
2009 10% 19.98% 7% 16.96%
2010 12% 23.08% 10% 20.05%
2011 12% 20.50% 10% 18.22%
2012 12% 21.77% 10% 19.24%
Memorandum from James B. Peake, Sec’y of Veterans
Affairs, to Under Sec’ys, Assistant Sec’ys, Other Key
Officials, Deputy Assistant Sec’ys, and Field Facility
Directors (Jan. 28, 2008); Memorandum from Eric K.
Shinseki, Sec’y of Veterans Affairs, to Under Sec’ys,
Assistant Sec’ys, Other Key Officials, Deputy Assistant
Sec’ys, and Field Directors (May 7, 2010); Memorandum
from Eric K. Shinseki, Sec’y of Veterans Affairs, to Under
Sec’ys, Assistant Sec’ys, Other Key Officials, Deputy
Assistant Sec’ys, and Field Directors (Feb. 21, 2012);
Summary of Veterans Affairs Veteran Owned Small
Business Goals Achieved for FY 2006 through FY 2012
(Mar. 18, 2014).
III
This suit arises from the following undisputed facts.
In early 2012, the VA decided to implement an Emergen-
cy Notification Service in several of its medical centers.
The VA contracting officer chose to use the GSA FSS to
procure the needed services, and awarded the contract to
a FSS vendor which was not a VOSB. On March 14, 2012,
10 KINGDOMWARE TECHNOLOGIES, INC. v. US
Kingdomware, a certified SDVOSB and qualified FSS
contractor, filed a bid protest with the Government Ac-
countability Office (“GAO”). Kingdomware challenged the
contract award as illegal on the ground that § 8127(d)
always bars the VA from using the FSS without first
invoking the Rule of Two and if satisfied, awarding the
contract pursuant to the Rule of Two. The VA argued that
subsection (d)’s requirement to invoke this Rule of Two
applies only when the VA determines that this is neces-
sary to meet the established contracting goals. The GAO,
relying on its opinion in a previous case, Aldevra, B-
406205, 2012 CPD ¶112 (Comp. Gen. Mar. 14, 2012),
rejected the VA’s argument, and issued a recommendation
decision that the VA cancel the contract award already
made and re-solicit the requirement as a SDVOSB set-
aside, Kingdomware, B-406507, 2012 CPD ¶165 (Comp.
Gen. May 30, 2012).
The VA soon after responded to the GAO and King-
domware, announcing that it would not acquiesce in
GAO’s recommendation decision. The VA was on firm
ground in refusing to accept the GAO decision. Although
agencies often follow GAO recommendations in bid pro-
test decisions “given the GAO’s long experience and
special expertise in such . . . matters,” CMS Contract
Mgmt. Servs. v. Massachusetts Hous. Fin. Agency, 745
F.3d 1379, 1384 (Fed. Cir. 2014) (internal citation omit-
ted), these recommendations are not binding on an agen-
cy. See Honeywell, Inc. v. United States, 870 F.2d 644,
647–648 (Fed. Cir. 1989) (noting that the provisions of the
Competition in Contracting Act “do not compel procuring
agencies to obey the recommendation of the Comptroller
General . . . .” (internal citation omitted)). By enforcing its
long-standing interpretation of § 8127(d), the VA set the
stage for Kingdomware’s retreat to the United States
Court of Federal Claims.
KINGDOMWARE TECHNOLOGIES, INC. v. US 11
IV
Kingdomware filed its complaint on March 15, 2012.
The parties stipulated to the facts as presented here and
cross-moved for summary judgment. Both parties claimed
victory on the plain meaning of § 8127(d). Kingdomware
argued that the word “shall” in the statute is an unam-
biguous imperative that the Secretary can never use the
FSS where the Rule of Two may be satisfied. The VA
responded that Kingdomware’s view writes out of the
statute its obligation to set the goals for VOSB contract
awards because a mandatory set-aside requirement for all
contracts would obviate the need for the Secretary to
establish goals. The VA argued that all the words in
§ 8127 have to be accounted for, and that “for the purpos-
es of meeting the goals under subsection (a)” language in
subsection (d) gives clear meaning to the “shall” impera-
tive to use the Rule of Two procedure: § 8127(d) properly
understood only compels the VA to conduct a Rule of Two
analysis when the Secretary determines that doing so is
necessary to meet the goals set by him under subsection
(a).
The Court of Federal Claims reasoned that Kingdom-
ware’s interpretation of § 8127(d) is not supported by the
plain language of the statute because it does not account
for the mandatory goal-setting requirements of the section
and the command that the Rule of Two procedure be used
“for purposes of meeting the goals.” Without addressing
the VA’s plain meaning interpretation, the Court of
Federal Claims ruled that “the goal-setting nature of the
statute clouds the clarity plaintiff would attribute to the
phrase ‘shall award’ in subsection (d) of the Act, and
renders the Act ambiguous as to its application to other
procurement vehicles, such as the FSS.” Kingdomware,
107 Fed. Cl. at 241.
Having found ambiguity in subsection (d) under the
first step of the analysis laid out in Chevron, U.S.A., Inc.
12 KINGDOMWARE TECHNOLOGIES, INC. v. US
v. Natural Resources Defense Council, Inc., 467 U.S. 837(1984), the Court of Federal Claims then assessed the
reasonableness of the VA’s consistent interpretation of the
statute, which was first expressed in the preamble of the
regulations promulgated for the 2006 Act after notice and
comment rulemaking, and since articulated in policy
statements, see, e.g., Press Release, Dept. of Veterans
Affairs, Statement on VA Veteran-Owned Small Business
Contract (Oct. 28, 2011), and in litigation. Because the
regulations themselves do not expressly state that the
subsection does not apply to the FSS, the court declined
Chevron deference to the VA’s interpretation. But since
the regulations only recite statutory language verbatim,
and that language was found ambiguous, and because the
regulations are wholly silent as to what role the FSS
might play in meeting the goals set by the Secretary, the
court considered granting deference under Skidmore v.
Swift & Co., 323 U.S. 134 (1944), to the clear statement of
the VA’s interpretation in the regulations’ preamble.
The Court of Federal Claims concluded that the VA’s
interpretation has many of the blazemarks favoring
deference under Skidmore. First, the VA’s view that
§ 8127 does not apply to the FSS has been consistent over
time, reflecting a uniform administrative and litigation
stance by the VA. Second, the VA’s view is not directly in
conflict with the words of the statute or the regulations,
both of which are silent on the role of the FSS in meeting
the Secretary’s goals. Also, the legislative history of the
statute expressed an intent that the VA retain the “op-
tion” to award contracts to SDVOSBs and VOSBs, and
would “exercise reasonable judgment” in meeting the
required set-aside goals alongside the VA’s obligation to
satisfy small business awards to other groups, such as
women’s owned businesses. 152 Cong. Rec. S11609-03,
S11615, S11616 (Dec. 8, 2006). Third, the VA’s interpreta-
tion as stated in the preamble of the regulations is crystal
clear and was made in the context of notice and comment
KINGDOMWARE TECHNOLOGIES, INC. v. US 13
rulemaking. Finally, the court noted that the VA’s inter-
pretation is consistent with the Government-wide tradi-
tional relationship between set-asides for small
businesses and the FSS as found in the FAR, namely that
agencies are not required to implement small business
set-aside programs before or while using the FSS. The
Court of Federal Claims thus found the VA’s interpreta-
tion sufficient to warrant deference. Accordingly, the VA’s
cross-motion for summary judgment was granted.
Kingdomware timely appealed to this court. We have
jurisdiction over the appeal under 28 U.S.C. § 1295(a)(3).
V
We review the Court of Federal Claims’ grant of
summary judgment without deference. Dominion Res.,
Inc. v. United States, 681 F.3d 1313, 1317 (Fed. Cir.
2012). In reviewing an agency’s action in a bid protest
case, we generally apply the Administrative Procedure
Act’s “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law” or “without ob-
servance of a procedure required by law” standard of
review. 5 U.S.C. § 706 (2)(A), (D); Impresa Construzioni
Geom. Domenico Garufi v. United States, 238 F.3d 1324,
1332 (Fed. Cir. 2001). Here, since there are no factual or
mixed factual and legal issues, and the only question is
one of statutory construction, we apply the Chevron
standard. See Dominion, 681 F.3d at 1317.
Chevron requires a reviewing court to determine by
statutory construction, at the first step, “whether Con-
gress has spoken to the precise question at issue.” 467
U.S. at 842. If so, the “unambiguously expressed intent” of
Congress prevails. Id. at 843. If, however, Congress has
not spoken to the issue at hand, or has done so ambigu-
ously, “the question for the court [at step two] is whether
the agency’s [interpretation] is based on a permissible
construction of the statute.” Id. If so, the agency’s view of
the law prevails. The interpretative exercise begins with
14 KINGDOMWARE TECHNOLOGIES, INC. v. US
the language of the statute, Santa Fe Indus., Inc. v.
Green, 430 U.S. 462, 472 (1977), and uses “traditional
tools of statutory construction,” including the “statute’s
text, structure, and legislative history, and . . . the rele-
vant canons of interpretation.” Delverde, SrL v. United
States, 202 F.3d 1360, 1363 (Fed. Cir. 2000). “If a court,
employing traditional tools of statutory construction,
ascertains that Congress had an intention on the precise
question at issue, that intention is the law and must be
given effect.” Chevron, 467 U.S. at 843 n.9.
In the case before us, Congress did speak directly to
the question of the Secretary’s authority to use the Rule of
Two “for purposes of meeting the goals under subsection
(a),” stating that for such purposes the Secretary “shall”
use the Rule of Two procedures. For the reasons explained
below, we conclude that Kingdomware’s interpretation of
§ 8127(d) does not account for, and undercuts, the Secre-
tary’s mandatory authority to set the goals for contracts
to VOSBs, and therefore is not a reasonable interpreta-
tion. By directly tying the mandatory Rule of Two con-
tracting procedure set forth in subsection (d) to the
achievement of the goals set pursuant to subsection (a),
Congress’s intent is clear. Congress intended the VA to
meet the goals set by the Secretary. To meet the goals, the
Secretary “shall” use Rule of Two procedures, “may” use
the subsection (b) and (c) contract tools, and may elect to
use the FSS at other times so long as the goals are met.
We perceive no ambiguity in § 8127, which “is the end of
the matter, for the court, as well as the agency, must give
effect to the unambiguously expressed intent of Con-
gress.” Chevron, 467 U.S. at 843; Whitman v. Am. Truck-
ing Ass’ns, 531 U.S. 457, 472 (2001).
VI
Kingdomware argues that the mandatory language of
§ 8127(d)—“shall award”—requires the VA to conduct a
Rule of Two analysis in all cases (other than those covered
KINGDOMWARE TECHNOLOGIES, INC. v. US 15
by subsections (b) and (c)), including those cases where
the VA would prefer to order against the FSS. Kingdom-
ware points out that Congress used language almost
identical to that in § 8127 in the 2003 Veterans Act, but
importantly, changed the permissive term “may” to the
mandatory term “shall.” 1 It invokes the canon of construc-
tion that a change in legislative language generally gives
rise to a presumption that Congress intended to change
the meaning of the law. See Midwest of Cannon Falls, Inc.
v. United States, 122 F.3d 1423, 1428 (Fed. Cir. 1997).
According to Kingdomware, the legislative history of
the 2006 Act also supports its interpretation of § 8127(d).
Kingdomware cites legislative history suggesting that the
2006 Act was passed following frustration with agencies’
failure to meet the permissive VOSB contracting goals of
the 1999 and 2003 Acts, and that Congress, in passing the
2006 Act to apply solely to the VA, “expect[ed] [the] VA to
set the example among government agencies” for contract-
ing with VOSBs. H.R. REP., at 15–16.
Kingdomware also points to legislative history where-
in the bill’s sponsor, John Boozman, explicitly noted the
change in language from “may” to “shall” in § 8127(d),
stating that “[t]he bill will essentially change what has
been a ‘may’ to a ‘shall’ in terms of goals . . . .” H.R. 1773,
1 The 2003 Veterans Act remains in effect and ap-
plies to all agencies. The 2006 Act, in contrast, applies
only to the VA. The relevant provision of the 2003 Act
states:
In accordance with this section, a contracting of-
ficer may award contracts on the basis of competi-
tion restricted to small business concerns owned
and controlled by service-disabled veterans if the
[Rule of Two is satisfied].
15 U.S.C. § 657f(b) (emphasis added).
16 KINGDOMWARE TECHNOLOGIES, INC. v. US
the Native American Veteran Home Loan Act; H.R. 3082,
the Veteran-Owned Small Business Promotion Act of 2005;
and Four Draft Bills: Hearing Before the Subcomm. on
Econ. Opportunity of the H. Comm. on Veterans Affairs,
109th Cong. 2 (2005) (statement of Rep. John Boozman,
Member, H. Comm. on Veterans Affairs).
Finally, Kingdomware notes that in the Report ac-
companying the legislation, the Committee on Veterans’
Affairs stated that “small businesses owned and con-
trolled by veterans and service-disabled veterans should
routinely be granted the primary opportunity to enter into
VA procurement contracts.” H.R. REP., at 14–15 (empha-
ses added). According to Kingdomware, this is evidence
that Congress intended the VA to determine whether the
Rule of Two was satisfied for every contract before it could
look to the FSS.
Kingdomware assigns no substantive meaning to the
phrase “for purposes of meeting the goals under subsec-
tion (a),” and instead contends that the words only state
the objective for Rule of Two awards, i.e., to meet the
Secretary’s goals. Kingdomware is adamant that the “for
purposes” words have no limiting effect. But Kingdom-
ware does not explain why Congress intended “shall” to
continue as an imperative after the Secretary’s goals are
achieved, or why Congress intended for the goals to be set
not by the Secretary, but by whatever success VOSBs
have under the Rule of Two in the marketplace.
Looking first to the text of the statute, the VA notes
that the mandatory language of subsection (d)—“shall
award”—is preceded by the phrase “for purposes of meet-
ing the goals under subsection (a).” While Kingdomware
maintains that this phrase is merely hortatory, the VA
argues that it must be given effect, and that, read as a
whole, the provision mandates a Rule of Two analysis
only for those contracts the VA has decided are necessary
“for purposes of meeting the goals under subsection (a).”
KINGDOMWARE TECHNOLOGIES, INC. v. US 17
Under § 8127(a), the VA is required to set VOSB con-
tracting goals with a mandatory statutory floor. The VA
points out that it retains significant discretion under this
subsection to set the numerical value of these goals.
According to the VA, this discretion would be meaning-
less, and the goal-setting provision of § 8127(a) would be
rendered superfluous, if it were required to apply the Rule
of Two for every contract. Under Kingdomware’s interpre-
tation of § 8127, the goal would be whatever number the
Rule of Two produces, regardless of the Secretary’s pref-
erence.
Responding to Kingdomware’s argument that “shall”
in the 2006 statute is necessarily entirely imperative
because “may” limited the Rule of Two in the 2003 stat-
ute, the VA explains that “shall” in subsection (d) exists to
distinguish “may” with regard to the non-competitive set-
aside procedures of subsections (b) and (c). In support, the
VA cites the legislative history of the 2006 Act which
explains clearly that Congress preferred use by the Secre-
tary of the Rule of Two over the permissive non-
competitive procedures. H.R. REP., at 16. The VA thus
reads subsection (d) in context with subsections (b) and (c)
to give meaning to “shall” that does not preclude use of
the FSS.
The VA also asserts that Kingdomware’s reading of
“shall” conflicts with its multiple small business contract-
ing responsibilities. According to the VA, if it were to
follow subsection (d)’s Rule of Two in every instance, in
addition to respecting the contracting priorities of subsec-
tion (i), it would be unable to meet other small business
contracting goals specified by the Small Business Act.
Moreover, the VA points out that under the Small Busi-
ness Act, including the 2003 Veterans Act amendments,
agencies have always retained the discretion to use the
FSS in lieu of following the Rule of Two. See 48 C.F.R.
§§ 8.404(a), 19.502-1(b). It argues that a single wording
change—from “may” in the 2003 Veterans Act to “shall” in
18 KINGDOMWARE TECHNOLOGIES, INC. v. US
the 2006 Act—without further explicit guidance as to how
the provisions of the 2006 Act interact with the FSS is
insufficient evidence that Congress intended to disrupt
the existing scheme here. According to the VA, Kingdom-
ware’s interpretation would lead to the untenable result
wherein the VA is unable to use the FSS for even routine
and minor purchases.
Despite its consistent practice of retaining the discre-
tion to forego the Rule of Two when using the FSS, the VA
notes that since the passage of the 2006 Act it has con-
sistently set and exceeded ambitious VOSB contracting
goals. This is evidence, in the VA’s view, that its interpre-
tation is consistent with the aims of Congress in passing
the 2006 Act, as expressed in the legislative history.
VII
It is a bedrock principle of statutory interpretation
that each word in a statute should be given effect. See Qi-
Zhuo v. Meissner, 70 F.3d 136, 139 (D.C. Cir. 1995) (“An
endlessly reiterated principle of statutory construction is
that all words in a statute are to be assigned meaning,
and that nothing therein is to be construed as surplus-
age.”); see also Ariad Pharms., Inc. v. Eli Lilly & Co., 598
F.3d 1336, 1345 (Fed. Cir. 2010) (concluding that a party’s
proposed statutory interpretation “violat[ed] the rule of
statutory construction that Congress does not use unnec-
essary words.”).
Kingdomware’s interpretation of subsection (d) as-
signs dispositive weight to the command term “shall,” but
ignores additional statutory language stating that this
mandate is “for purposes of meeting the goals under
subsection (a).” Under Kingdomware’s interpretation, the
statute’s mandate requiring the VA to conduct a Rule of
Two analysis would apply to every competitive contract
contemplated by the VA without any regard for the VOSB
contracting goals set under subsection (a), despite the
provision’s explicit reference to these goals. Indeed, King-
KINGDOMWARE TECHNOLOGIES, INC. v. US 19
domware conceded at oral argument that under its inter-
pretation of 38 U.S.C. § 8127(d), the VA must continue to
apply a Rule of Two analysis for every contract even after
it has met the goals set under § 8127(a). Oral Argument
at 4:05–5:20. Further, as the VA points out, if § 8127(d)
requires the agency to conduct a Rule of Two analysis for
every contract irrespective of the goals set under subsec-
tion (a), this goal-setting provision is itself made superflu-
ous. Because Kingdomware’s plain meaning
interpretation of § 8127(d) reads the words “for purposes
of meeting the goals under subsection (a)” out of the
statute and makes the mandatory goal-setting statutory
provision unnecessary, it cannot stand.
The statutory scheme as a whole links the Rule of
Two mandate (denoted by the word “shall”) in subsection
(d) to the goals set under subsection (a). The mandate is,
therefore, the required procedure for meeting these goals.
It is fully consistent with subsection (a), which requires
the VA to set goals for contracting with VOSBs, but
grants the VA considerable discretion to set the value of
these goals. Accordingly, the agency need not perform a
VOSB Rule of Two analysis for every contract, as long as
the goals set under subsection (a) are met. The correct
reading of the statute according to its plain meaning puts
the “shall” in subsection (d) in harmonious context with
the discretionary “may” provisions of subsections (b) and
(c), and assures that the goals of subsection (a) will be set
by the Secretary, not the success or failure of the Rule of
Two in the marketplace.
Congress enacted § 8127 out of frustration with the
failure of agencies Government-wide to achieve the aspi-
rational goals of 3% for SDVOSBs. In hearings leading up
to the 2006 Veterans Act, the prime reason for failure to
achieve the Government-wide goals was “the discretion-
ary, not mandatory, nature of the goals.” H.R. REP., at 15.
As Rep. Boozman observed, § 8127 changed what had
been a “may” to a “shall” in terms of goals. Congress chose
20 KINGDOMWARE TECHNOLOGIES, INC. v. US
the VA to set the example among Government agencies by
imposing on it the obligation to meet the goals set by the
Secretary for both categories of veteran-owned small
businesses. Id. Indeed, Congress anticipated that with the
contracting tools provided in § 8127, the VA would be able
to “meet, if not exceed” its contracting goals, id., while at
the same time fulfilling the goals it has set for other small
business entities. 152 Cong. Rec. S11609-03, S11616 (“The
goals for veteran and service-disabled veteran owned
businesses are not in any way intended to prevent at-
tainment of other set-aside goals.”).
As it stands, there is no reason to compel the Secre-
tary to set aside any contract for a Rule of Two inquiry
before using the FSS notwithstanding his goals, as King-
domware requests. The VA has consistently met the
mandatory goals for procurement from SDVOSBs and
VOSBs in each year since the Veterans Act of 2006 went
into force, and Kingdomware does not contend otherwise.
The Secretary has complied with his statutory mandate to
both set goals and meet them, and, accordingly, the VA
contracting officer’s decision not to set aside the contracts
at issue was not arbitrary, capricious, or contrary to the
law.
CONCLUSION
For the reasons provided above, we affirm the final
decision of the Court of Federal Claims in favor of the VA.
AFFIRMED
COSTS
Each side shall bear its own costs.
United States Court of Appeals
for the Federal Circuit
______________________
KINGDOMWARE TECHNOLOGIES, INC.,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
______________________
2013-5042
______________________
Appeal from the United States Court of Federal
Claims in No. 12-CV-0173, Judge Nancy B. Firestone.
______________________
REYNA, Circuit Judge, dissenting.
The majority holds that the 2006 Veterans Act does
not require the Department of Veterans Affairs (“VA”) to
conduct a Rule of Two analysis in every procurement, as
long as the VA satisfies its annual small business partici-
pation goals. I do not construe the 2006 Veterans Act as
giving the VA discretion to decide whether to conduct a
Rule of Two analysis. For this and other reasons set forth
below, I respectfully dissent.
I.
The plain language of the 2006 Veterans Act unam-
biguously requires VA contracting officers to conduct a
Rule of Two analysis in every acquisition and does not
exempt task or delivery orders under the Federal Supply
Schedule (“FSS”) from this imperative. Despite the
2 KINGDOMWARE TECHNOLOGIES, INC. v. US
statute’s clarity, the majority guts the Rule of Two imper-
ative of its full force and effect by holding that a Rule of
Two analysis is not required for every contract “as long as
the goals set under subsection (a) are met.” Maj. Op. at
19. Participatory goals, however, are aspirational, and an
agency cannot refuse to set aside an acquisition solely
because small businesses already receive a fair proportion
of the agency’s contracts. 1 In relying entirely on prefatory
language to second-guess Congress, the majority becomes
policy maker and departs from our duty to enforce the
proper interpretation of the statute regardless of our
policy views. 2
The statutory provision at issue could not be clearer.
It provides that contracting officers “shall award con-
tracts” on the basis of restricted competition whenever the
contracting officer has a reasonable expectation that the
Rule of Two will be satisfied:
(d) Use of restricted competition.—Except as
provided in subsections (b) and (c), for purposes of
meeting the goals under subsection (a), and in ac-
cordance with this section, a contracting officer of
the Department shall award contracts on the ba-
sis of competition restricted to small business con-
cerns owned and controlled by veterans if the
contracting officer has a reasonable expectation
that two or more small business concerns owned
1 48 C.F.R. § (“FAR”) 19.502-6(f); see also LBM, Inc.,
B-290682, 2002 CPD ¶ 157 (Comp. Gen. Sept. 18, 2002).
2 See Harbison v. Bell, 556 U.S. 180, 198 (2009)
(Thomas, J., concurring) (noting that it “‘is not within our
province to second-guess’ the ‘wisdom of Congress’ action’
by picking and choosing our preferred interpretation from
among a range of potentially plausible, but likely inaccu-
rate, interpretations of a statute” (quoting Eldred v.
Ashcroft, 537 U.S. 186, 222 (2003))).
KINGDOMWARE TECHNOLOGIES, INC. v. US 3
and controlled by veterans will submit offers and
that the award can be made at a fair and reasona-
ble price that offers best value to the United
States.
38 U.S.C. § 8127(d) (emphasis added). This provision is
part of a broader veteran-owned small business contract-
ing program congressionally tailored to the VA, which
requires the Secretary of the VA to increase small busi-
ness contracting opportunities by establishing annual
participation goals for veteran-owned small businesses
(“VOSB”) and service-disabled veteran-owned small
businesses (“SDVOSB”) in VA acquisitions. Id.§ 8127(a)(1). This statutory program confirms the imper-
ative character of subsection (d). Specifically, for con-
tracts below the simplified acquisition threshold
($150,000), VA contracting officers “may use procedures
other than competitive procedures” in awarding contracts
to veteran-owned small businesses. Id. § 8127(b) (empha-
sis added). Similarly, for acquisitions valued above the
simplified acquisition threshold but below $5 million, VA
contracting officers “may award a contract” to a veteran-
owned small business using noncompetitive procedures as
long as certain requirements are met. Id. § 8127(c) (em-
phasis added).
In contrast, subsection (d) of the 2006 Veterans Act
applies to all VA acquisitions and requires VA contracting
officers to conduct a Rule of Two analysis in every acquisi-
tion, without limitation. Unlike subsections (b) and (c),
which use discretionary language (“may use” and “may
award”), subsection (d) uses mandatory language (“shall
award”), and does not otherwise give discretion to VA
contracting officers to decide whether to conduct a Rule of
Two analysis. As the Supreme Court has noted, the word
“shall” is ordinarily the language of command, and when
the same statute uses both “may” and “shall,” the normal
4 KINGDOMWARE TECHNOLOGIES, INC. v. US
inference is that each is used in its usual sense and that
the former is permissive, the latter mandatory. 3
Consistent with the 2006 Veterans Act’s imperative,
the Government Accountability Office (“GAO”) has sus-
tained more than seventeen protests in response to the
VA’s refusal to comply with § 8127(d). 4 As the GAO held,
“The provisions of both the VA Act and the [VA Acquisi-
tion Regulation] are unequivocal; the VA ‘shall’ award
contracts on the basis of competition restricted to
SDVOSBs where there is a reasonable expectation that
two or more SDVOSBs will submit offers and award can
be made at a fair and reasonable price.” Aldevra, B-
405271, 2011 CPD ¶ 183 (Comp. Gen. Oct. 11, 2011). The
GAO further concluded that “the VA Act requires, without
limitation, that the agency conduct its acquisitions using
SDVOSB set asides where the necessary conditions are
present.” Id.
The majority summarily dismisses any reliance on the
GAO’s construction, noting that “the VA was on firm
ground in refusing to accept the GAO decision.” Maj. Op.
at 10. Yet, we have long noted that GAO recommenda-
tions, although not binding, are nevertheless “instructive
in the area of bid protests.” 5 The Court of Federal Claims
routinely “‘give[s] due weight and deference’ to GAO
recommendations ‘given the GAO’s long experience and
3 Anderson v. Yungkau, 329 U.S. 482, 485 (1947);
see also Kentucky, Educ. Cabinet, Dep’t for the Blind v.
United States, 424 F.3d 1222, 1227 (Fed. Cir. 2005).
4 U.S. Gov’t Accountability Office, B-158766, GAO
Report to Congress for Fiscal Year 2012 (Nov. 13, 2012).
5 Centech Grp., Inc. v. United States, 554 F.3d 1029,
1038 n.4 (Fed. Cir 2009) (citing Planning Research Corp.
v. United States, 971 F.2d 736, 740 (Fed. Cir. 1992)).
KINGDOMWARE TECHNOLOGIES, INC. v. US 5
special expertise in such bid protest matters.’” 6 The
majority ignores that GAO’s experience and special exper-
tise is such that “[a]n agency’s decision to disregard a
GAO recommendation is exceedingly rare.” Id. Indeed,
we recently acknowledged that “from 1997-2012, the GAO
issued 5,703 merit decisions and sustained 1099 protests;
during that period, an agency disregarded the GAO’s
recommendation only ten times.” Id. at 1384-85. Hence,
although not binding precedent, the GAO “plays an im-
portant role in the resolution of contested procurement
decisions,” and its construction of the 2006 Veterans Act
is consistent with § 8127(d)’s “unequivocal” imperative to
conduct a Rule of Two analysis in every procurement.
Honeywell, Inc. v. United States, 870 F.2d 644, 647-48
(Fed. Cir. 1989).
II.
To override the clear imperative of § 8127(d), the ma-
jority relies on the provision’s prefatory language to
reason that requiring a Rule of Two analysis in every VA
procurement “makes the mandatory goal-setting statutory
provision unnecessary.” Maj. Op. at 19. Prefatory lan-
guage is introductory in nature and does nothing more
than explain the general purpose for the Rule of Two
mandate. The Supreme Court has noted, albeit in the
context of constitutional construction, that “apart from [a]
clarifying function, a prefatory clause does not limit or
expand the scope of the operative clause” and that opera-
tive provisions should be given effect as operative provi-
sions, and prologues as prologues. District of Columbia v.
Heller, 554 U.S. 570, 578 (2008). Here, the operative
clause is that VA contracting officers must award con-
6 CMS Contract Mgmt. Servs. v. United States, 745
F.3d 1379, 1384 (Fed. Cir. 2014) (quoting Baird Corp. v.
United States, 1 Cl. Ct. 662, 668 (1983)) (alteration in
original).
6 KINGDOMWARE TECHNOLOGIES, INC. v. US
tracts on the basis of restricted competition if they have a
reasonable expectation that the Rule of Two will be satis-
fied, a mandate that cannot be limited by its prologue.
The majority takes an unusual step of collecting ex-
trinsic evidence to show that “[t]he VA has consistently
met the mandatory goals for procurement from SDVOSBs
and VOSBs in each year since the Veterans Act of 2006
went into force[.]” Maj. Op. at 20. While the exact ra-
tionale for exploration outside the record is not clear, the
majority apparently rests on these statistics to conclude
that “there is no reason to compel the Secretary to set
aside any contract for a Rule of Two inquiry” where the
goals were met for the time period in question. Id. This
is an improper construction of the statute, as it adds a
limitation that does not exist in the plain words of the
statute. “Statutory construction must begin with the
language employed by Congress and the assumption that
the ordinary meaning of that language accurately ex-
presses the legislative purpose.” Engine Mfrs. Ass’n v.
South Coast Air Quality Mgmt. Dist., 541 U.S. 246, 253
(2004). Moreover, these statistics were not before the
Court of Federal Claims or relied upon by either party,
but were provided in response to a request during oral
argument. As the appellant notes, the VA submission
does not identify the source of the data and “appears to
have been created specifically in response to the Court’s
request in this litigation.” ECF#50, Appellant Letter to
Court (Apr. 2, 2014). Significantly, there is no evidence in
the record to show that VA contracting officers rely on, or
have access to, these types of data in making contracting
decisions, and the GAO has explicitly held that an agen-
cy’s belief it has satisfied its small business goals does not
affect its obligation to conduct a Rule of Two analysis. 7 In
7 LBM, Inc., B-290682, 2002 CPD ¶ 157 (Comp.
Gen. Sept. 18, 2002); see also FAR 19.502-6(f) (noting that
KINGDOMWARE TECHNOLOGIES, INC. v. US 7
sum, the majority’s use of this extrinsic evidence is post
hoc rationalization constructed to shore-up an otherwise
unsound construction of the statute.
III.
The majority’s reliance on the phrase “for purposes of
meeting the goals” is also belied by the VA’s own regula-
tions, which contain no such language. Specifically, in
2009, the VA issued regulations reiterating the impera-
tive to conduct a Rule of Two analysis in every acquisi-
tion. See 48 C.F.R. §§ 819.7005, 817.7006. These
regulations, which use the mandatory phrase “shall set-
aside,” do not contain the phrase “for purposes of meeting
the goals” or any other mention of the goals. 8 The VA’s
agencies cannot refuse to set aside an acquisition solely
on the basis that “[s]mall business concerns are already
receiving a fair proportion of the agency’s contracts for
supplies and services”).
8 The VA Acquisition Regulation provides:
(a) The contracting officer shall consider SDVOSB
set-asides before considering VOSB set-asides.
Except as authorized by 813.106, 819.7007 and
819.7008, the contracting officer shall set-aside
an acquisition for competition restricted to
SDVOSB concerns upon a reasonable expecta-
tion that,
1) Offers will be received from two or more el-
igible SDVOSB concerns; and
2) Award will be made at a fair and reasona-
ble price.
48 C.F.R. § 819.7005 (emphasis added); see also id.§ 819.7006 (applying same set-aside regulation to
VOSBs). The exceptions mentioned at 48 C.F.R.
8 KINGDOMWARE TECHNOLOGIES, INC. v. US
regulations thus unequivocally require the VA to conduct
a Rule of Two analysis in every procurement, which is
consistent with the agency’s authority to write regulations
as broadly as it wishes, subject only to the limits of the
statute. Auer v. Robbins, 519 U.S. 452, 463 (1997). The
majority downplays the regulation’s imperative by point-
ing to the preamble to the regulations. Maj. Op. at 8
(quoting 74 Fed. Reg. 64,619, 64,624 (Dec. 8, 2009)).
Again, statements made in a preamble as part of the
notice-and-comment process cannot override the unam-
biguous language of the regulations themselves. That is,
where the enacting or operative parts of a statute or
regulation are unambiguous, the meaning of the statute
or regulation cannot be controlled or limited by the lan-
guage in the preamble. 9 Accordingly, the VA’s refusal to
conduct a Rule of Two analysis before proceeding to the
FSS is at minimum a violation of its own regulations, if
not also a violation of § 8127(d).
IV.
The majority does not address the practical implica-
tions of its decision in light of the VA’s existing obligation
under the Federal Acquisition Regulation (“FAR”) to
conduct a Rule of Two analysis in nearly every acquisition
exceeding $3,000. FAR 19.502-2. 10 By holding that the
§§ 813.106, 819.7007, and 819.7008 relate to sole-source
awards and are thus not relevant to this appeal.
9 Wyoming Outdoor Council v. U.S. Forest Serv.,
165 F.3d 43, 53 (D.C. Cir. 1999) (quoting Assoc. of Am.
Railroads v. Costle, 562 F.2d 1310, 1316 (D.C. Cir. 1977)).
10 The FAR contemplates two situations in which
the contracting officer must conduct a Rule of Two analy-
sis. For acquisitions exceeding $3,000 but less than
$150,000, the contracting officer must award the contract
on the basis of restricted competition unless he or she
makes an affirmative finding that the Rule of Two is not
KINGDOMWARE TECHNOLOGIES, INC. v. US 9
2006 Veterans Act’s Rule of Two provision is discretion-
ary, the majority effectively renders § 8127(d) superfluous
and unnecessary in light of the FAR’s existing Rule of
Two requirement. Although the FAR exempts task or
delivery orders awarded under FSS contracts from the
general Rule of Two requirement, see FAR 19.502-1(b),
the 2006 Veterans Act is devoid of any similar language
that would allow the VA to proceed directly to the FSS
without first conducting a Rule of Two analysis. Hence,
the majority’s holding reads this exemption into § 8127(d)
and expands the VA’s discretion to decide when to conduct
a Rule of Two analysis, thereby undermining the statuto-
ry role of § 8127(d).
The majority, on the other hand, finds mischief in re-
quiring contracting officers to continue conducting Rule of
Two analyses after the agency’s goals are met. The
majority concludes that requiring a Rule of Two analysis
in every VA procurement would render the goal-setting
provision superfluous, as “the goal would be whatever
number the Rule of Two produces, regardless of the
Secretary’s preference.” Maj Op. at 17. The majority
seemingly believes it is bad policy to require an agency to
continue efforts to award contracts to small businesses
once its participation goals are met, overlooking that
participation goals are aspirations, not destinations.
Indeed, the FAR explicitly provides that an agency may
not refuse to set aside an acquisition solely on the basis
that small businesses are “already receiving a fair propor-
tion of the agency’s contracts for supplies and services.”
FAR 19.502-6(f).
reasonably expected to be satisfied. Id. § 19.502-2(a). For
acquisitions exceeding $150,000, “[t]he contracting officer
shall set aside” the acquisition for small businesses “when
there is a reasonable expectation that” the Rule of Two
will be met. Id. § 19.502-2(b) (emphasis added).
10 KINGDOMWARE TECHNOLOGIES, INC. v. US
The mischief feared by the majority is further refuted
by the discretion retained by contracting officers in how
they perform a Rule of Two analysis. Because the Rule of
Two requires contracting officers to set aside an acquisi-
tion only if they have a reasonable expectation that (i)
offers will be made by at least two responsible small
businesses, and (ii) award will be made at fair market
prices, contracting officers are entitled to exercise their
business judgment in determining whether these two
conditions are met. See 38 U.S.C. § 8127(d); FAR 19.502-
2. The contracting officer’s decision not to set aside a
procurement is subject to a “highly deferential rational
basis review” and will not be overturned absent a showing
that his or her business judgment was unreasonable. 11
The contracting officer is not required to use any particu-
lar method of assessing small business availability, and
factors such as “prior procurement history, market sur-
veys and/or advice from the agency’s small business
specialist and technical personnel may all constitute
adequate grounds for a contracting officer’s decision not to
set aside a procurement.” Raven Servs. Corp., B-243911,
91-2 CPD ¶ 203 (Comp. Gen. Aug. 27, 1991). The Rule of
Two, therefore, does not diminish the contracting officer’s
discretion to ultimately conclude that there is (or is not) a
reasonable basis for setting aside any given procurement
for small businesses.
The majority’s reticence to requiring agency ad-
vancement of small business participation beyond the
aspirational goals is due to a misapprehension of the
interplay between a Rule of Two analysis and agency-
11Res-Care, Inc. v. United States, 735 F.3d 1384,
1390 (Fed. Cir. 2013); see also Information Ventures, Inc.,
B-294267, 2004 CPD ¶ 205 (Comp. Gen. Oct. 8, 2004);
Benchmade Knife Co., Inc. v. United States, 79 Fed. Cl.
731, 738 (2007).
KINGDOMWARE TECHNOLOGIES, INC. v. US 11
wide goals. The former is undertaken by the contracting
officer on a contract-by-contract basis, while the latter are
set by the head of the agency and inform the agency’s
entire procurement process. Under the majority’s ra-
tionale, the participation goals established under the
Small Business Act would also be rendered superfluous by
the FAR’s existing Rule of Two requirement, which ap-
plies in nearly every acquisition. See 15 U.S.C.
§ 644(g)(1); FAR 19.502-1. Such an outcome would over-
turn more than thirty years of federal procurement law
upholding the Rule of Two as a legitimate method of
ensuring that agencies award a “fair proportion” of con-
tract dollars to small businesses. 12 In fact, the FAR
requires agencies to conduct a Rule of Two analysis under
FAR 19.502-2 regardless of whether the agency’s “small
business goals have already been satisfied.” LBM, Inc., B-
290682, 2002 CPD ¶ 157 (Comp. Gen. Sept. 18, 2002).
The real mischief here is that the majority opinion
would saddle contracting officers with the obligation in
every acquisition to determine the status of the agency’s
small business goals—expressed as percentages of total
awarded contract dollars—but does not elaborate on how
12 See, e.g., Adams & Associates, Inc. v. United
States, 741 F.3d 102, 110 (Fed. Cir. 2014) (rejecting the
argument that a “‘fair proportion’ determination must be
made on a contract-specific basis”); Delex Sys., Inc., B-
400403, 2008 CPD ¶ 181 (Comp. Gen. Oct. 8, 2008) (not-
ing that “[t]he origin of the Rule of Two predates the
FAR” and that “it has been adopted as the FAR’s imple-
mentation of the [Small Business] Act’s requirements”);
Federal Acquisition Regulation (FAR) “Rule of Two”, 49
Fed. Reg. 40,135, 40,136 (Oct. 12, 1984) (“This method of
implementing the fair proportion of total contracts has
been upheld by the Courts and the Comptroller Gen-
eral.”).
12 KINGDOMWARE TECHNOLOGIES, INC. v. US
contracting officers can determine that these goals have
been “met” before the end of the fiscal year. Participation
goals require agency officials to consider a range of factors
in their broader acquisition policies well before a solicita-
tion is issued or an individual contract is contemplated.
The majority thus errs when it asserts that an obligatory
Rule of Two requirement would obviate the goal-setting
provision of the 2006 Veterans Act.
V.
In sum, the majority adopts an untenable construc-
tion of the 2006 Veterans Act by holding that the agency
need not perform a VOSB Rule of Two analysis for every
contract, as long as the goals set under subsection (a) are
met. The majority’s holding deprives the Rule of Two
mandate of its force and effect, it impedes congressional
objectives regarding set asides, and it renders § 8127(d)
inoperative and unnecessary. For these reasons, I dis-
sent.