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bob7947

CAFC Use of Kingdomware Ruling by SCOTUS

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I posted a new opinion by the Court of Appeals for the Federal Circuit (CAFC).  As you know, the U. S. Supreme Court (SCOTUS) recently issued their ruling in Kingdomware.  I thought it was interesting that the CAFC used the ruling this quickly.

Quote

There is no dispute that the award-term extension under H.4 requires the government to issue a new Task Order for the extension of debt collection services for the competitors. The Supreme Court recently held that issuance of a new Task Order against a GSA Federal Supply Schedule contract constitutes an award of a contract. See Kingdomware Techs., Inc. v. United States, No. 14-916, 2016 WL 3317563, at *8–9 (U.S. June 16, 2016). It is thus a protestable event under § 1491(b). Data Mgmt. Servs. JV v. United States, 78 Fed. Cl. 366, 371 (2007) (“The court’s protest jurisdiction extends to protests of task or delivery orders placed against a GSA schedule contract.”); IDEA Int’l, Inc. v. United States, 74 Fed. Cl. 129, 135–37 (2006) (holding that the Court of Federal Claims has jurisdiction over protests relating to issuance of Task Orders under GSA Federal Supply Schedule contracts).

I posted the excerpt here and linked the full CAFC opinion at the end of the excerpt.

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PepeTheFrog wonders how far the Kingdomware decision may echo. SCOTUS considered the "rule of two" declension found in 38 USC 8127(d), which applies only to the Department of Veteran Affairs (VA). SCOTUS held, unanimously, that a GSA order is a contract, and that this particular "rule of two" declension uses "shall" and is therefore mandatory-- no exceptions. The VA tried to wiggle out of mandatory application in several ways, including:

"In finalizing its regulations meant to implement the Act, the Department stated in a preamble that [Section] 8127's procedures "do not apply to [Federal Supply Schedule] task or delivery orders." VA Acquisition Regulation, 74 Fed. Reg. 64624 (2009)."

See https://www.gpo.gov/fdsys/pkg/FR-2009-12-08/pdf/E9-28461.pdf

To PepeTheFrog's knowledge, the VA only included this comment in the Federal Register, and did not explicitly implement this exception in the VAAR (VA's FAR supplement).

In contrast, the FAR unambiguously exempts GSA orders from mandatory application of the general "rule of two." See FAR 8.404(a), which is based on a statute, 15 USC 644(r). So, the VA's "rule of two" declension has an unambiguous statute with no statutory or explicit regulatory exceptions (and a SCOTUS decision backing it up). The general "rule of two" has a statutory exception allowing discretion for GSA orders, and strong regulatory implementation thereof.

Despite these distinguishing facts, PepeTheFrog wonders, in increasing order of likelihood, if this SCOTUS decision will spur:

(a) organized lobbying from small businesses to remove the general "rule of two" statutory exception allowing discretion for GSA orders

(b) local or low-level policy shops to require mandatory application of the general "rule of two" to GSA orders

(c) individual contracting officers to misread the decision and unilaterally apply the general "rule of two" to GSA orders

(d) individual contracting clerks to spread incorrect "knowledge" and "best practices" regarding (c) and this subject like a tropical virus

 

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Well, SBA jumped right onto it saying they were reviewing all thier policies and procedures. It was all over the internet the next day.  My immediate thought was, WHY?   The decision applied to the law on the VA and should have had nothing to do with  FAR 19 and SBA.  But they started a firestorm immediately.  So I bet the incorrect interpretation spreads like a virus. 

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FEATURE COMMENT: Kingdomware: Broader Than SCOTUS Intended? (found in 58 No. 26 Government Contractor, ¶ 239, July 13, 2016)-- written by a co-author of an amicus brief filed in Kingdomware, Damien Specht, and his associate, Rachael Plymale-- suggests the Kingdomware case can open the door to a challenge to the general "rule of two" exception for GSA orders found in FAR 8.404(a):

"15 USCA § 644(r).
This provision may not completely settle the FSS set-aside debate. Section 644(r) provides only that agencies have the discretion to set aside parts of multiple-award contracts. It does not, however, expressly create any additional exemptions to § 644(j), which mandates that all procurements between $2,500 and $100,000 be set aside if the rule of two is met. Thus, if it were found that § 644(j) applies to orders under the FSS, § 644(r) is no savior. As explained below, the Supreme Court's holding may give litigants exactly that argument."

644(r) provides discretion to set aside GSA orders, but not a clear exemption to the mandatory "rule of two" found in 644(j), so goes the argument.

If so, then why did Congress amend the statute with 644(r) in response to Delex Sys., Inc., Comp. Gen. Dec. B-400403 (2008)?

What happened to reading the statute as a whole, harmonized, with meaning given to all its provisions?

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I don't think the authors fairly characterized GAO's position. They wrote:

Quote

Importantly, GAO's decision in Aldevra, through the underlying regulations on which it rests, is premised in part on the alleged legal distinction between contracts and orders. The FAR pt. 19 exemption for FSS orders on which GAO relied in Aldevra is found in FAR pt. 8.4. Part 8.4 applies only to “individual orders for supplies or services placed against Federal Supply Schedule contracts.” In contrast, the set-aside requirements both in § 644(j) and the implementing regulations in FAR pt. 19 apply not to “orders,” but to “contracts.” It is this distinction which formed the basis for GAO's decision and GSA's post-Delex arguments that the FSS is exempt from the § 644(j) statutory set-aside requirements.

Did the GAO premise their decision on the distinction between "orders" and "contracts"? I don't see it. From Aldevra, B-411752, 16 October 2015:  

Quote

Given the language of the Jobs Act, as well as regulatory provisions implementing the Jobs Act, it is readily apparent that the general small business set-aside rule for contracts valued between $2,500 and $100,000, set forth under section 644(j), and implemented underFAR §19.502–2, does not apply when placing orders under the FSS program. In this regard, the Jobs Act clearly provides for granting agency officials discretion in deciding whether to set aside orders under multiple-award contracts. Moreover, the regulatory provisions implementing this statutory provision (FAR §8.405–5(a)(1)(i) and FAR §19.502–4(c)) establish that the small business rules set forth under FAR Part 19, which includes FAR §19.502–2, are not mandatory, and instead afford contracting officers with the discretion to set aside orders under the FSS program.

In reaching our conclusion we recognize that it is a basic canon of statutory construction that each section of a statute should be construed in a manner that produces a harmonious whole. Ashland Sales & Serv. Co., B–401481, Sept. 15, 2009, 2009 CPD ¶186 at 5. We further recognize that in its submission to our Office pertaining to this protest, SBA argued that the most reasonable manner in which to harmonize sections 644(j) and (r) is to read section (j) as requiring that all FSS orders with values in the specified range be set aside unless market research shows that competitive offers from two or more small businesses cannot be expected, and to read section (r) as merely creating an exception to the requirement in 10 U.S.C. §2304c(b) (and 41 U.S.C. §4106) that all multiple-award contract holders be given a fair opportunity to compete for orders. According to SBA, a contrary interpretation would effectively repeal section 644(j) by implication. We disagree.
First, SBA's repeal by implication argument is misplaced since the application of section 644(r), by its terms, and as implemented through the regulations noted above, is limited to multiple-award contracts and orders placed under such contracts. Thus, to the extent the set-aside requirement of section 644(j) is understood as not applying to orders under multiple-award contracts, section 644(j) would continue to have full application to all other types of contracts. Accordingly, just as the SBA would seek to harmonize the provisions at issue by interpreting section 644(j) as carving out an exception with respect to section 644(r), an equivalent harmony can be achieved by changing the direction of the exception; that is, by properly understanding section 644(r) as having carved out a limited exception with respect to section 644(j) for orders under multiple-award contracts.
*5 Our interpretation in this regard is further bolstered by the second problem with SBA's position. That is, SBA's reading of the two provisions is at odds with the regulatory framework adopted to implement section 644(r). As noted above, FAR §19.502–2 expressly provides that the small business provisions of the FAR, to include the provision implementing section 644(j), are not mandatory. Accordingly, the regulations have essentially established section 644(r) as an exception to section 644(j) where orders under the FSS are concerned, thereby providing a harmonious application of the two sections. Third, we note that the interpretation set forth by SBA is at odds with its own regulations; specifically, 13 C.F.R. §125.2(e), quoted above, which establishes, without identifying any exception, that it is within a contracting officer's discretion whether to set aside an order against a multiple-award contract that was not itself set aside for small business.

[Emphasis added].

 

I think the bolded language shows that the GAO considers orders under multiple-award contracts to be a subcategory of contracts--not different than contracts. I see nothing in the Kingdomware decision that weakens the GAO's position regarding this issue. 

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On ‎7‎/‎19‎/‎2016 at 5:00 PM, Boof said:

Well, SBA jumped right onto it saying they were reviewing all thier policies and procedures.

 

On ‎7‎/‎20‎/‎2016 at 6:30 PM, Don Mansfield said:

I see nothing in the Kingdomware decision that weakens the GAO's position regarding this issue.

Who wants to bet PepeTheFrog a case of beer that the SBA will "interpret" Kingdomware to mean that the mandatory "rule of two" applies to GSA orders?

(To be clear, this "interpretation" is not what PepeTheFrog thinks, for reasons discussed above...)

PepeTheFrog likes Heineken. It's such a beautiful hue of green.

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This discussion has been dormant for a few weeks, but one potential area of the SBA rules that may need clarification as a result of the Court's determination that an order is a contract is 13 CFR 121.1004 dealing with the time for filing a size protest which currently states that

A protest must be received by the contracting officer prior to the close of business on the 5th day, exclusive of Saturdays, Sundays, and legal holidays, after the contracting officer has notified the protestor of the identity of the prospective awardee for

(i) The contract; or

(ii) An order issued against a Multiple Award Contract if the contracting officer requested a new size certification in connection with that order.

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59 minutes ago, Retreadfed said:

one potential area of the SBA rules that may need clarification as a result of the Court's determination that an order is a contract

Retreadfed, could you please clarify the problem in the current SBA size protest rules, and how it relates to Kingdomware? PepeTheFrog is curious.

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Pepe, the issue is what is a contract for purposes of the SBA regulations?  That term is not defined by the SBA.  As currently written, it is not clear if the SBA accepts the FAR definition of a contract.  If the term "contract" includes orders, then it would seem that 13 CFR 121.404, concerning when size status is determined, would have to be revised as well as 121.1004.  If "contract" does not include orders, this should be stated explicitly so that it is clear what is meant by "contract."  As a real world example of what I am talking about, I once filed a size protest concerning the size status of a concern that had been awarded a task order under a multiple award IDIQ contract.  The contract had been set aside for small business concerns.  After award of the contract, information came to light indicating that the contractor was affiliated with a large business concern that had not been identified by the contractor prior to award of the contract or task order.  The protest was based on the premise that the order was a contract.  However, OHA denied the protest on the grounds that an order is not a contract.

Further, adoption of a broad definition of "contract" would facilitate the policy objectives underlying 13 CFR 121.108 and the government's interest in preventing fraud in this area.

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Retreadfed,

In the context of 13 CFR 121.1004, I think that it's obvious that "contract" does not include orders issued against a multiple-award contract. If we interpret "contract" to include orders issued against a multiple-award contract, then (ii) becomes superfluous and we violate a rule of statutory interpretation (i.e., no superfluous language). 

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17 hours ago, Retreadfed said:

Don, if 121.1004 is reconsidered in light of Kingdomware, and "contract" is interpreted to include orders, then (ii) could be eliminated.

That would change the intent of the rule. The SBA doesn't want to hear protests against orders issued against a Multiple Award Contract if the contracting officer did not request a new size certification in connection with that order. If any change were made, (i) could be changed to read "contracts other than orders issued against a Multiple Award Contract" for example. I don't think such a change is necessary, however.

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Don, I don't know what the thought process was behind the SBA's adoption of this rule, particularly as it regards the question of what is a contract.  It could well be that the SBA wrote the rule the way it did because it believe(s)(d) that an order is not a contract. 

In any event, I believe that not including orders in the definition of contract and continuing to curtail the opportunity to challenge the size status of a concern frustrates the policy underlying 121.108 and the Small Business Jobs Act.  The SBA talks about a presumed loss because of a willful misrepresentation of size status, but provides only a narrow and limited ability to have this misrepresentation brought to light and addressed by a body with particular expertise in size determination matters.

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You're right, Pepe. I just tried to attach the memo from SBA HQ to its PCRs saying the rule of two applies to FSS orders, but it was too big. Maybe Bob will post it.

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