For federal construction contractors, payment and performance bond obligations in construction contracts with the federal government that exceed $150,000 should, typically, come as no surprise. However, what requirements should contractors expect from a contract that is ambiguous as to whether it is a construction contract, yet calls for construction-related services, but lacks explicit bonding requirement terms? Can bonding requirements be “read-in” to the contract? When should contractors raise such questions? This past November, the Federal Circuit addressed those questions in K-Con, Inc. v. Secretary of the Army, 908 F.3d 719 (Fed. Cir. 2018). This decision provides instrumental lessons contractors should keep in mind before submitting offers for projects that include construction-related services. Continue Reading No Bonding Requirements? Think Again, Instructs the Federal Circuit
On September 11, 2013, the American Legion filed an amicus curiae brief, asking the Federal Circuit to reverse the Court of Federal Claims’ November decision in Kingdomware Technologies, Inc. v. The United States. In Kingdomware, the COFC effectively overturned an important line of Government Accountability Office (“GAO”) decisions affecting VOSBs and SDVOSBs. Those GAO cases (commonly referred to as the Aldevra cases) addressed a critically important aspect of the Veterans Benefits, Health Care, and Information Technology Act of 2006, 8 U.S.C. §§ 8127-28 (“the Act”).
That Act established “the rule of two.” It required that “a contracting officer of [the VA] shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation 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.” 38 U.S.C. § 8127(d).
On multiple occasions, contractors Kingdomware Technologies and Aldevra brought protests before the GAO, wherein they cited the language above and argued that the VA failed to follow the requisite “rule of two.” Specifically, the contractors averred that the agency failed to perform market research to determine whether two or more VOSB/SDVOSB concerns could satisfy the requirements of numerous solicitations and/or failed to set contracts aside for such concerns when market studies indicated that two or more such companies existed. Instead, in multiple instances, the VA opted to simply select contractors from the Federal Supply Schedule (FSS). The contractors argued that doing so was a violation of the Act.
The VA looked at it differently. It argued that the Act did not require it to consider setting aside procurements for SDVOSBs or VOSBs when the FSS could be used. The VA felt that it had the discretion to meet its requirements through the FSS, regardless of any obligations imposed by the Act.
In the Aldevra line of cases, the GAO agreed with the contractors’ interpretation of the Act. However, in a surprising move, the VA refused to follow the GAO’s recommendation. In an effort to break the gridlock, Kingdomware opted to press its position in the Court of Federal Claims. Unfortunately, the COFC agreed with the VA’s interpretation and effectively rejected the GAO’s support of “Veterans First.”
The COFC concluded that “the 2006 Act must be construed in light of its goal-setting provisions and thus the statute is at best ambiguous as to whether it mandates a preference for SDVOSBs and VOSBs for all VA procurements.” Although the Act uses the phrase “shall award” in one place, the Court reasoned that this phrase “must be read in connection with the other terms in the 2006 Act.” The Court found that those other terms demonstrated that the Act was “goal-setting in nature.” As such, it did not require the VA to consider setting aside procurements for SDVOSBs or VOSBs. Based on this reading of the Act, the COFC held that the VA had broad discretion with regard to set-aside procurements and, therefore, that the agency was not required to consider setting aside the procurement at issue. Kingdomware appealed to the Federal Circuit, which is where the matter presently sits.
In filing its amicus brief, the American Legion has joined the fight against the VA. In the brief, the American Legion argues that the Act was specifically passed to increase the number of contracts set-aside for VOSBs and SDVOSBs. As such, Congress’ use of the word “shall” was entirely deliberate. The selected language was intended to force the VA to follow the “rule of two.” The American Legion’s brief cites to an earlier Federal Circuit decision, which stated that: “the word ‘shall’ is not ambiguous. . . ‘shall is mandatory language,’ and ‘nothing in the language of the statute states or suggests that the word shall does not mean exactly what it says.’ ” The amicus brief goes on to state that “[b]y awarding contracts to nonveteran businesses…the VA diverts up to nearly $3 billion per year in government contracts away from veteran-owned small businesses.” The American Legion argues that this result is unacceptable and calls on the Federal Circuit to reverse the COFC ruling.
It is difficult to argue with the American Legion’s position. By using the word “shall” in the Act, Congress made its intent clear. The Act was designed to place veterans and service-disabled veterans ahead of all others for contracting purposes. There is nothing ambiguous about that proposition and the statutory language supports such a conclusion. The fact that the VA refuses to make awards to those it is designed to serve, despite the clear intent of the Act, is mind-boggling. Let’s hope the Federal Circuit agrees.