On Thursday, June 16, the Supreme Court ruled, unanimously, that the Veterans Administration (VA) must apply the Rule of Two to all of its procurements.

On the face, this ruling does not sound like big news, but the details effectively mandate that all procurements (including Federal Supply Schedules) must be offered first to veteran-owned firms before any other type of company, and it overturns the actual practices of the VA’s procurement process.

The argument before the Supreme Court centered around the words “shall” and “may.” The VA argued that “shall” only applied to meeting its contracting goals of working with veteran-owned small businesses. The VA further stated that, as long as it was meeting the goals, it had the discretion to, and when to, use veteran-owned small businesses.

However, the Court stated that “Congress used the word ‘shall’ as a command. When a statute distinguishes between ‘may’ and ‘shall,’ it is generally clear that ‘shall’ imposes a mandatory duty.”

Now, here’s the back story: 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. 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.”

Two exceptions provide that the contracting officer “may” use noncompetitive and sole-source contracts for contracts below the simplified acquisition threshold of $150,000.

The U.S. Government Accountability Office (GAO) determined that the VA’s actions were unlawful, but when the VA declined to follow the GAO’s non-binding recommendation, Kingdomware Technologies, a service-disabled, veteran-owned small business, filed its first suit. The government ruled in the VA’s favor, holding that the department was only required to apply the Rule of Two when necessary to satisfy its annual goals.

Kingdomware then filed a bid protest with the GAO in 2012, alleging that the department procured multiple contracts through the Federal Supply Schedule (FSS) without employing the Rule of Two.

The June 16 Supreme Court ruling upheld Kingdomware’s 2012 protest, with Justice Clarence Thomas stating in his opinion: “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.”

While this ruling opens the door wider to VA contracts for veteran-owned firms, it may also result in fewer contracts for other types of small businesses unless the overall small business set-aside goals are raised to encourage growth among all types of small businesses.

For the full details, visit www.supremecourt.gov/opinions/15pdf/14-916_6j37.pdf.

Gloria Larkin is president of TargetGov, in Linthicum, and a national expert in business development in the government markets. Visit www.targetgov.com or call toll-free 1-866-579-1346 for more information.