House Proposes Broader Application of “VA Rule of Two” to Close Kingdomware Loophole

June 22, 2017

By Samuel S. Finnerty

On June 6, 2017, a bipartisan pair of lawmakers introduced a bill in the U.S. House of Representatives, H.R. 2781, known as the Ensuring Veteran Enterprise Participation in Strategic Sourcing Act (“Bill”), which, if passed, would have a significant impact on how the Department of Veterans Affairs (“VA”) administers the Veterans First Contracting Program (“Vets First”) and specifically—the “Rule of Two.” As a brief background, the “Rule of Two” requires the VA to set aside procurements for veteran-owned small businesses (“VOSBs”) where offers are likely to be received from two or more capable VOSBs at a fair and reasonable price. Vets First also requires the VA to set annual goals for VOSB participation in VA procurements.

Although seemingly transparent on its face, the “Rule of Two” has been the subject of significant debate, particularly concerning when and how its must be applied. In its June 2016 Kingdomware decision, the U.S. Supreme Court issued a ruling that should have been a boon to SDVOSBs and clarified some of the uncertainty surrounding the “Rule of Two.” Notably, in that case, the Court confirmed that the VA must broadly apply the “Rule of Two” to all contracts, including orders under the Federal Supply Schedule administered by the General Services Administration (“GSA”), regardless of whether the VA has already met its annual contracting goals.

However, despite the Supreme Court’s mandate in Kingdomware, the VA has continued to use government-wide contract vehicles, such as GSA schedules, to award contracts to non-veteran-owned firms where there are not two VOSB contract holders likely to submit offers. The rationale for this practice is that in this situation a set-aside is not required because the “Rule of Two” would not apply. Yet, as a result, the VA has been able to circumvent the goals of Vets First by awarding contracts under procurement vehicles that have low VOSB participation.

Turning to the issue at hand, the Bill would prevent the VA from skirting the “Rule of Two” as described above. As an initial matter, the Bill would require the VA to determine which procurement vehicles awarded under the Federal Strategic Sourcing Initiative (“FSSI”) do not have at least two VOSB contract holders. Subsequently, for each such contract, the Bill would require the VA to either (1) work with GSA to increase the number of VOSB contract holders to at least two, or (2) stop awarding orders under that category of the FSSI. In addition, the Bill would require the VA to submit a certification to Congress that each VA contract awarded under the FSSI has at least two VOSB contract holders. In short, the Bill would direct the VA to only make awards under the FSII where the “Rule of Two” can be satisfied.

The Bill’s clear policy is to increase VOSB participation in contracts administered by GSA, which would help the VA to fulfill and honor the goals of Vets First and allow VOSBs to better compete for federal procurements.

The Bill has been referred to the House Committee on Veterans’ Affairs. Follow The PM Legal Minute Blog for updates.

About the Author:
Sam Finnerty is an associate with PilieroMazza in the Government Contracts Group. He may be reached at sfinnerty@pilieromazza.com.

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