KINGDOMWARE TECHNOLOGIES, INC., Petitioner v. UNITED STATES
Interviewer(s): Anthony M. Kennedy, Samuel A. Alito, Jr., Stephen G. Breyer, Elena Kagan, John G. Roberts, Jr., Ruth Bader Ginsburg, Sonia Sotomayor
Interviewee(s): Zachary D. Tripp, Thomas G. Saunders

John G. Roberts, Jr.: We'll hear argument first this morning in Case No. 14-916, Kingdomware Technologies v. United States. Mr. Saunders.

Thomas G. Saunders: Mr. Chief Justice, and may it please the Court: By its plain terms, the 2006 Veterans Act requires the VA to consider veterans first under the Rule of Two before awarding contracts to other suppliers. That mandate, which applies only to the VA and reflects the agency's unique obligation to veterans, contains no exception for the contracts formed when the VA makes awards under the Federal Supply Schedule.

And the government's attempt to create such an exception fares no better than its prior attempts to resist the mandate. Its semantic distinction between contracts and orders conflicts with its own concession that an FSS order is a contract in the ordinary sense.

It creates --

Samuel A. Alito, Jr.: Before you get too deeply into the merits of the case, could you just tell us what relief you could get at this point that's consistent with the Tucker Act?

Thomas G. Saunders: We're seeking a declaratory judgment that, with respect to these particular procurements, the VA erred in failing to conduct market research and -- and to apply the Rule of Two before going straight to the FSS.

Ruth Bader Ginsburg: On the ground that this is capable of repetition yet evasive of review, is that your -- your answer to the mootness?

Thomas G. Saunders: Absolutely.

It's -- it's recurred -- the same situation's recurred numerous times.

Even during the course of this litigation, Kingdomware continues to be actively competing for these contracts, and these contracts are of a short duration.

Anthony M. Kennedy: What was the amount of this contract?

Thomas G. Saunders: This contract was for a base amount of $33,000.

Samuel A. Alito, Jr.: Isn't it strange to get a declaratory judgment that something unlawful occurred in the past but that no other relief is available for this past violation of the law?

Thomas G. Saunders: Well, no other relief is available solely because of the passage of time it has taken for this case to work its way up to this Court. And that's why the doctrine of capable of repetition yet evading a view -- review is --

Samuel A. Alito, Jr.: What -- what I'm getting at is: What good would such a declaratory judgment do?

Thomas G. Saunders: Well, once -- once the legal rights, once the meaning of 8127(d) is established in this case by that declaratory judgment, then going forward, you would expect that the VA will comply with this Court's interpretation of the law.

And so it would be a tremendous benefit to the veterans community going forward from that declaration, from that elucidation of the legal rights here.

Sonia Sotomayor: You did -- your client stipulated away the cost that it would have been entitled to after winning before the GAO, correct?

Thomas G. Saunders: The --

Sonia Sotomayor: So there was relief. You just gave it away, essentially.

Thomas G. Saunders: Well, the -- the Tucker Act doesn't allow for the protest costs, and so the -- the relevant costs that might have been allowed would be bid preparation costs. But the very point of this case is there wasn't an opportunity to bid.

This isn't a situation in which the opportunity was put out there and Kingdomware was able to compete for it.

It was -- it skipped through the Rule of Two process required by 8127, went straight to the Federal Supply Schedule, and the first that Kingdomware ever learned of it was when the announcement went up saying that the contract had been awarded on the sole-source basis to someone else under the Federal Supply Schedule. So under the circumstances of this case, where it's about the government going to a procedure it shouldn't be going to first, there's no opportunity to amass those bid protests.

Sonia Sotomayor: Your client is still an FSS vendor and is still competing for contact -- contracts that the --

Thomas G. Saunders: Yes.

Sonia Sotomayor: Okay.

Thomas G. Saunders: And -- and our client -- he's listed it in the FSS, but most importantly for this case is a service-disabled veteran-owned small business and continues to be listed in the VA's database, which limits the eligibility for the Rule of Two here.

Sonia Sotomayor: The government takes the position that if we rule in your favor, that means that we're doing away with, effectively, the FSS. Is that your view?

Thomas G. Saunders: No.

Absolutely not.

The FSS is still going to apply to a large number of procurements.

Congress, when it made this targeted provision mandatory and focused on the VA, also said in 8127(e) that it only applies to the businesses that are registered in the VA's database. And it did that for two reasons: Number one, as opposed to the self-certification procedures of the Small Business Act, which are more open to abuse, it wanted to prescreen and make sure these are the real deal here in the database.

And that also ensures that the VA has this information at its fingertips. Currently, there are about 7,000 people listed in that database.

There are going to be tons of procurements for which the VA will simply consult its own database and see that there is no veteran-owned business that's eligible to do this.

Sonia Sotomayor: Can it tell from that database whether or not a particular vendor is a veteran or a disabled veteran?

Thomas G. Saunders: Oh, absolutely.

The -- the database -- and this is one -- this is very clear -- the VA has its own VA-specific database mandated by law that is limited to veteran-owned and service-disabled, veteran-owned small businesses.

And the only people who are eligible under 8127(e) for this preference are people who are contained in that database.

Sonia Sotomayor: Well, there's two databases.

There is general database and there is the FSS database.

Are we talking about the same one?

Thomas G. Saunders: No, we're talk -- we're talking about a separate VA-specific database.

And -- and so what's happening is the VA is gathering in this information.

It knows who the veteran-owned small businesses are.

And then, rather than consulting its own database to see who they are, it's been going straight to the FSS.

Sonia Sotomayor: Which -- and then you are wanting to do away with the FSS?

Thomas G. Saunders: No, not at all.

Because --

Sonia Sotomayor: So they go through the FSS and find the veteran-owned businesses?

Thomas G. Saunders: Not -- not under this mandate, because the -- the mandate here in the law is tied to the VA's database.

And people who are listed as a veteran-owned small business under the FSS database don't go through those same --

Ruth Bader Ginsburg: Mr. Saunders, I think that Justice Sotomayor's question is asking you to address what happens if there's than urgent need.

I think you would concede it's a slower process if you have to use the Rule of Two.

And -- and suppose there is an urgent need for a certain good or service.

Thomas G. Saunders: Well, two things: Number one, the Rule of Two only applies when you have both fair and reasonable price and best value to the United States.

So if there's truly an urgent need and it's not going to be met by going through the Rule of Two, then I think you have leeway within the best-value determination.

John G. Roberts, Jr.: Well, but that strikes me as a -- a very thin protection. Are -- these terms imply a lot of discretion: What's fair? What's reasonable? What's best value? The idea that that's going to operate as a significant restraint on the requirement that the VA locate veteran businesses seems a real stretch to me.

Thomas G. Saunders: But -- but the process here -- I mean -- take you through the process of applying the Rule of Two.

It's limited to the universe of the people in the database.

So all the VA has to do is fire up its own database and see who's out there. For the heartland --

Elena Kagan: How is it apparent that a particular veteran's business can perform a particular contract? I mean, what in the database shows you, yes, this veteran's small business is capable of performing this contract in a reasonably effective way?

Thomas G. Saunders: The -- because the database has the North American Industry Classification System codes, which are actually the same codes that correspond to what's in the FSS. And to the extent there is additional information that's needed, it's very easy to contact the veterans in those -- that database.

John G. Roberts, Jr.: Counsel, could you get back to your answer to my question?

Thomas G. Saunders: Oh.

And -- and so there's -- for the heartland of -- of small-business contracting, the -- are going to fall into the simplified acquisition procedures under part 13 of the Federal Acquisition Regulation.

That's for services under $150,000.

And for procurement of goods, it's now up to $7 million. And under that system, you have a greatly streamlined process for the smallest contracts, micro purchases.

It's -- it's really just you make the decision for the sort of lower tier of contracts, certainly for anything under $25,000, all the -- all the government's doing is placing a purchase order under the simplified acquisition procedures. There is a standard form.

It's Form 1449. It's a single sheet of paper.

And that's the purchase order that they place.

And quite frankly, the form looks almost identical to FSS Form 347 for how you place the order. So for the lower-level stuff, there is already a procedure outside the FSS that's incredibly streamlined.

And as you begin to get to larger dollar-valued contracts, the requirements of going within the FSS begin to ramp up in terms of having to seek price reductions.

And also, if you think of how the FSS operates in terms of services, you might be listed on there for the GSA as someone who can provide information technology, customized computer programming. But to go to Justice Kagan's question about how do you know can you actually do this work? That same process plays out under the FSS.

For the services, yes, someone's listed as a custom computer programmer. But the agency still has to issue a statement of work saying this is what we actually need done.

Here are our requirements.

It puts that out there with their request for quotations that come in from the various FSS suppliers. Now, they will be constrained by, you know, the prices that they listed before on the FSS, but it still is an interactive process.

It's not just firing up the computer and -- and clicking --

Ruth Bader Ginsburg: When is it -- what's it --

Anthony M. Kennedy: And I suppose there is some system for the government to check to see whether or not this person really has been offering this good, has -- has a track record, because that goes with the fair and reasonable price?

Thomas G. Saunders: Yes, absolutely.

And they can compare, you know, a broad -- when they're doing the market research, they have a lot of flexibility to compare here. The other thing I will say is that there is a broad grant of discretion to the VA in terms of what it requires in the database.

So if it finds that it needs more information to make this law work up front from the vendors, then it can require that.

It can take the effort that it spent resisting the mandate and put it into making the mandate work within its existing --

Stephen G. Breyer: This is a case --

Ruth Bader Ginsburg: You mentioned the best value to the United States is one of the qualifications. I understand fair and reasonable price.

But what is offer best value to the United States? What does that add to the fair and reasonable price?

Thomas G. Saunders: Well, best value is designed to go beyond price.

It's -- it's really sort of the totality of the circumstances.

It lets the government consider quality, its -- its needs.

In this case it would allow it to consider the urgency of a particular procurement.

John G. Roberts, Jr.: Well, the sort of thing that there will be an awful lot of litigation about, don't you think?

Thomas G. Saunders: Against a framework that has been recognized, the discretion -- you know, there's litigation within an APA framework in terms of arbitrary and capricious review.

John G. Roberts, Jr.: Well, you're putting a lot more weight on that -- excuse me -- on that provision if you prevail on your statutory interpretation argument.

And it seems to me that that provision is inevitably going to lead to litigation. How do you tell what's best? It's a combination of price and quality.

It's not any absolute that you can identify, and you know, what's fair, what's reasonable. I -- I think the businesses that you represent would be litigating those terms -- it's hard to say -- almost in every case.

Thomas G. Saunders: I -- given the -- the standards for making that out, I don't think that you would see rampant litigation in this area in terms of the -- the squishiness of the time cuts in favor of the government in that sense there.

Anthony M. Kennedy: How do -- how do we know how to evaluate your answer or the government's position if the government comes and says, oh, this is just unworkable, it's going to be difficult if we've never been involved in government contracting? Are there findings? Are there -- are there writings in law reviews or what -- what do we look to, to determine the empirical basis for your argument, or the lack of empirical basis for your argument?

Thomas G. Saunders: I think it's looking to --

Anthony M. Kennedy: Based on what we think is going to happen?

Thomas G. Saunders: Well, no.

It's looking to the -- the authorities that exist on the face of the statute, in terms of look at the simplified acquisition procedures and how streamlined they can be, look at the FSS procedures and how complicated and -- and -- they can be as the dollar values ramp up.

Ruth Bader Ginsburg: But there is no empirical evidence because this is -- this is a new kind of provision, this mandatory set-aside; isn't that true? So we don't have any -- any logic.

We don't have any experience at all.

Thomas G. Saunders: We -- we don't have direct experience with the mandatory provision like this because it's been resisted for a decade and hasn't gone --

Sonia Sotomayor: Hasn't the SBA been using it?

Thomas G. Saunders: Well, under the Small Business Act, there were agencies that were doing set-asides, and then it was made explicit that they could do set-asides within the FSS.

We also have been dealing with situations for many years where you have other preferences outside of the Small Business Act framework in terms of Federal Prison Industries, the AbilityOne Program for the blind and the severely disabled that have always taken precedence over the FSS. And it's not proved to be unworkable to give those mandates mandatory effect without going to the FSS. And you know, we've also cited -- you see in our reply briefs -- sources saying -- and we have a treatise that we've cited -- that's discussed the fact that the simplified acquisition procedures for these low value contracts are just as simple, if not in many ways, simpler.

Sonia Sotomayor: But you're not talking about just the small value contracts.

You want the supply to all contracts, to all orders.

So to tell me that it works for the small ones is not answering the questions of my colleagues.

How much is it going to complicate the big ones?

Thomas G. Saunders: Well, for the -- for the big ones, the FSS itself is already complicated.

It's already ramping up in complexity as the contracts get bigger. And quite frankly, when we get to those bigger dollar figures, the idea that if -- if a small business is going to qualify for a contract that's above $150,000, that we can't go through the procedures that Congress mandated here, the VA can't even consult its own database and see whether there's an eligible supplier before going straight to the FSS I don't think holds water in that sense. And at the end of the day here, we're looking at a mandate that was plain on its face in terms of Congress saying shall award contracts, contracts being an expansive, all-inclusive term here.

And these policy judgments are judgments that Congress made in terms of the administrative feasibility of this when it decided to move away from the failed Small Business Act approach and go to the mandatory approach here.

Stephen G. Breyer: That's why I wondered -- I'm not certain how this works -- that I read the statute.

It says, "The department shall award contracts on the basis of competition restricted to veterans.

If, if, if.

Okay? Well, what wouldn't be awarded according to veterans? I mean, what was surprising to me is that the goal was to have 3 percent awarded to veterans. But if I read this the way you read it, everything will be awarded to veterans.

I mean, maybe not literally, but there are millions of veterans. There are probably hundreds of thousands or millions of veterans' businesses.

So wouldn't everything be awarded to veterans? What wouldn't be?

Thomas G. Saunders: No, not -- not at all.

Stephen G. Breyer: What wouldn't? That's what I want you to address.

Thomas G. Saunders: The vast -- for the -- given the limited number of veteran-owned small businesses that are out there, and --

Stephen G. Breyer: How many are there?

Thomas G. Saunders: When -- when Congress was going through the legislative history here, it was hearing that maybe 15 percent of businesses.

So there --

Stephen G. Breyer: It may be 15 percent of businesses, but the question is what does the Department of Veterans Affairs buy? And my guess is they buy lots of stuff.

They buy household stuff, they buy paper towels, they buy buildings, they buy all kinds of things.

And in respect to all the things they buy, if you read this, a contract supplies to everything.

I guess they'll buy it all from veterans.

Now, it's just -- or 90 percent, I don't know.

It's very surprising to me that Congress would have wanted the Veterans Administration to buy everything from veterans. Now -- now, that's -- or nearly everything. Now you explain to me -- I must be missing something -- and -- and you explain to me what I'm missing.

Thomas G. Saunders: First, the -- the fair and reasonable price and best value requirement --

Stephen G. Breyer: No, no, I understand that. I said they have certain qualifications, of course.

Do you think the veterans -- things aren't -- they have reasonable prices.

They -- they have -- they're qualified.

They do a fine job.

Let's say it's surprising that Congress would have wanted nearly everything to be bought from veterans, that's all.

And where am I wrong?

Thomas G. Saunders: You're wrong in terms of the -- the natural cap on the limit of businesses that are out there, but where there is a veteran-owned small business that can perform the requirement --

Stephen G. Breyer: I'm not saying they can't perform.

Thomas G. Saunders: No, no.

I'm saying --

Stephen G. Breyer: I want you to address what you're calling this natural cap.

You're saying to me you're wrong, it doesn't mean everything, it means like 10 percent.

Is that what you're saying? Or what -- what are you saying? Explain what it is.

I read it.

I thought it's everything.

Now you explain why it isn't everything or nearly everything.

I mean, if you're not a veteran, Congress wouldn't normally say you don't get a leg up, but to shut you out entirely? I mean, that's -- that's just my problem that I want you to explain.

Thomas G. Saunders: It's -- it is everything, all the contracts for which there is a veteran-owned small business that can supply --

Stephen G. Breyer: Are you saying Congress want -- just wanted everything that veterans can supply to be supplied by veterans? And if I say, is that everything, it's not 90 -- it's not a hundred percent, probably not 99 percent, but it might be 80 percent.

I mean, I'm guessing.

You tell me.

You're the expert. What percent is it when you win?

Thomas G. Saunders: When I win I don't think we're going to be talking about numbers that high. Congress in the legislative history was talking about 15 percent of the --

Anthony M. Kennedy: I thought your answer would be a hundred percent.

Thomas G. Saunders: I'm just saying as a practical matter.

In terms of what Congress --

Sonia Sotomayor: What's the --

Anthony M. Kennedy: What is your answer to Justice Breyer? A hundred percent provided the statutory requirements are satisfied?

Thomas G. Saunders: Yes; that is correct.

When there is a business --

Anthony M. Kennedy: And we know how many businesses there are because they registered under a special procedure.

Thomas G. Saunders: Right.

And so when there is the business that's available, yes, it should be getting all those opportunities.

That's exactly what Congress --

Elena Kagan: Well, what Justice -- what -- Justice Breyer raised a question about the way this statute is worded because it says, "For purposes of meeting the goals." And the goals are very low; the goals are 3 percent. So it seems odd for a statute to say for persons of meeting a 3-percent goal, you should do the following, which will lead to 90 percent.

Thomas G. Saunders: Well, a few points, Justice Kagan.

First, the 3-percent goal was the government-wide goal under the Small Business Act.

This provision for service-disabled veterans requires the VA to set a higher goal.

Elena Kagan: How high?

Thomas G. Saunders: It doesn't -- it doesn't require the specific number.

It has to be higher than 3 percent.

And we're talking about --

Elena Kagan: That could be four percent.

Thomas G. Saunders: It -- it could be, but we're talking about a period in time when there have been goals since 1999, discretionary authority since 2003. And as of 2005, the government's progress towards its 3-percent goal was .6, six-tenths of 1 percent.

Elena Kagan: No, it sounds like the government did very badly in meeting its goals.

And you can understand why Congress would have done something to say the government -- and specifically the VA -- has to do a lot better toward meeting its goals. But the goals are still, you know, pretty far down compared to what Justice Breyer was indicating is the natural tendency of this system that you're describing to produce -- you know, almost everything is given to a veteran.

Thomas G. Saunders: Well, where there is a veteran that's eligible.

But even at the time that this was done, the goals had always been a 3 percent government-wide goal.

Individual agencies were required to set their goals based on the maximum practical opportunity, and so even at the time going into this, the VA had already set a higher goal.

I believe it was 7 percent. The goals that it had set under the statute have been even higher than that.

And the answer is, yes, the government was expecting the VA -- this to be an important mandate for the VA because this was tied to the VA's unique obligation to help veteran-owned small businesses rather than setting up --

John G. Roberts, Jr.: You -- you mentioned that the -- you've mentioned several times, I think, that there has to be a veterans -- veteran-owned business that's eligible as -- as -- but don't you think there will be a lot more veteran-owned businesses if you prevail? In other words, if everything is open to the preference, as long as there is, you know, two that get the preference, don't you think a lot more veterans -- won't it make a lot more sense for them to go into business rather than some other line of work?

Thomas G. Saunders: It may well be.

And Congress would think that's fantastic.

We're --

John G. Roberts, Jr.: Well, you shouldn't be telling us that the limitation is that there's only so many veteran-owned businesses, because if you prevail, there will be many times that.

Thomas G. Saunders: Yeah.

And there could be, and then that -- you know, this was enacted at a time in 2006 where we were facing incredible unemployment rate among veterans.

And so this is encouraging formation of more veteran-owned small businesses.

Stephen G. Breyer: I see many good things. People would enlist in the Armed Forces.

They would have careers assured after.

It still surprises me, but my question is not really aimed at you.

It's aimed at the other side, and you would have a chance to answer this question. I can understand.

I accept your argument, pretty much.

I don't know why there would be any exception to the SS -- the FSS, or whatever it's called. But I was rather stopped by the lower court's argument which they have given up, which is that right in the statute, not in a preference, but right in the statute it says, "For purposes of meeting the goals," under Section A.

That, I understand. And then what you do is you'd have goals; they should be tough goals, and -- and if you're way ahead of the goals, then maybe you don't have to do it. That was their argument.

The government's given that up. So -- so I don't know what to do.

I mean, I'm going to ask them for help --

Thomas G. Saunders: But --

Stephen G. Breyer: -- and then -- the same --

Thomas G. Saunders: The government has given that up because the stated purpose of setting those goals was to increase contracting opportunities.

And the House report here was referring to tools to meet, if not exceed, its contracting goals.

The goals were never intended to be ceilings here.

And if, in retrospect, it seems like there might be some mismatch between the mandate and the goals, you have to remember that at this time they were so far from meeting even the more modest goals that Congress was thinking of this in mandatory terms: We have to do everything we can here to ramp up this obligation, because the old approaches, the discretionary approaches aren't working. And the idea that in doing that they would, without saying anything to that effect in the statute, leave an enormous loophole that lets the agency take up to 60 percent of its procurements off the top and just send them straight to the FSS doesn't jive, especially when you remember that at the time that the agency was missing its goals, those contracting goals counted not just open market contracts, but FSS orders were being counted.

When the government was doing .6 against the 3 percent goal, that was both on the open market and on the FSS.

Congress was worried about that failure across the board and enacted a mandatory provision.

John G. Roberts, Jr.: Thank you, counsel. Mr. Tripp.

Zachary D. Tripp: Mr. Chief Justice, and may it please the Court: The mandate here applies when the VA awards wholly new contracts, not when it places orders under old ones.

Ruth Bader Ginsburg: Mr. Tripp, would you preliminarily explain why the government walked away from what was a winning position in the Federal circuit? I mean, it's really odd.

I read the Federal circuit decision, and I expected to open the government brief and say, yeah, the Federal circuit was right. You're telling us the Federal circuit was wrong.

Zachary D. Tripp: I just -- about the Federal circuit's position, we think the Federal circuit's rationale is right, so far as it goes, but that it's incomplete.

And so the Federal circuit has a complete answer for why Petitioner's sort of maximalist position is wrong, which is that if -- if this mandate applies in 100 percent of procurements, then the secretary's discretion to set goals is pretty much wiped out, and it's hard to even talk about them as goals at all.

But the fact that there needs to be discretion somewhere in this scheme doesn't really answer where the discretion needs to exist. And the distinction that we're drawing -- first, I want to be clear about the distinction that we're drawing.

We're not saying that when you place an order under a preexisting contract that that's not a kind of contract; of course it is.

We say that outright in our brief.

What we're saying is that when Congress establishes a procedure that applies when an agency, quote, awards contracts, that's naturally read to refer to awarding wholly new contracts, not placing orders under old ones.

Samuel A. Alito, Jr.: Your answer to Justice Ginsburg is that the Federal circuit was actually right even though you disagree with its reasoning.

And isn't the real answer to -- is the real answer to this question that the -- the VA regulations don't say anything about goals?

Zachary D. Tripp: But it's not only that the VA regulations don't say anything about goals.

It's that the VA's regulations map up perfectly with the argument that we're -- we're -- we're pressing here, which is that this is a mandate that we apply in 100 percent of procurements when we are awarding a wholly new contract. We do it every single time under the regulations, but those regulations never even come up.

You never -- like, a contracting officer doesn't begin a procurement by turning to part 819.70 of the -- of the FAR. There's like a 5,000-page document, right? They can open up, march their way through, place an FSS order under part -- part 8.

And when you place an order under a preexisting contract, the FAR is crystal clear that you do not consider set-aside requirements.

Sonia Sotomayor: I don't quite --

Zachary D. Tripp: And so the argument we're advancing here is foursquare with the way our regulations actually work and what our practices have been on the ground since 2009.

Sonia Sotomayor: So why is it that you call these order -- order contracts? I look at --

Zachary D. Tripp: Pardon?

Sonia Sotomayor: I look at your history, and you, yourself, the government itself, calls these orders order contracts.

Zachary D. Tripp: An order is a kind of contract, you know, under the --

Sonia Sotomayor: It's not a kind.

It is a contract.

Zachary D. Tripp: Yeah.

Yeah, it's a contract under the --

Sonia Sotomayor: So tell me what kind of contract do you have, absent the order with the FSS vendor?

Zachary D. Tripp: Oh, under the FSS, there's already a government contract between the United States and the vendor to supply an indefinite quantity of -- of a certain category of products or services.

And so we're placing an order under those preexisting contracts.

Sonia Sotomayor: How difficult is it for you to take the database that you have with respect to what are veteran-owned businesses.

Take that database, look at it, look at what it is you need, a stapler, and see if -- how many vendors on that list supply staplers, and then check that against the FSS?

Zachary D. Tripp: It -- it --

Sonia Sotomayor: If there's no veteran that matches the FSS list, then you go to the FSS. What's the problem with that --

Zachary D. Tripp: If I could take a step back and explain why this is so important to the VA. The thing that we're most troubled by is that Petitioner's position would block us from being able to place orders under preexisting contracts.

The whole point of the contract --

Sonia Sotomayor: No.

You didn't listen to me. You go to your veteran-owned list; you're looking for staplers.

You find five veteran-owned businesses on your list that sell staplers, but you want to -- you need an FSS supplier, because you don't want to negotiate a new contract.

You don't want to do all that hard work.

You check whether there are two or more of those five on the FSS list.

Zachary D. Tripp: All right.

So you're saying if we were going to use the Rule of Two to choose among FSS vendors who are already qualified --

Sonia Sotomayor: Exactly.

Exactly.

Zachary D. Tripp: -- the first point about that is that Petitioner would lose.

They are not a qualified vendor.

Sonia Sotomayor: I don't care about the merits of whether it wins or loses.

I'm talking about the legal issue. What is so difficult about that?

Zachary D. Tripp: Yeah.

A couple points about that. The -- that would significantly narrow our practical concerns.

Our practical concerns are mostly driven by -- by -- by the interpretation that we would not be able to place orders under preexisting contracts at all.

We do this 85,000 times a year.

Sonia Sotomayor: I don't -- I don't --

Zachary D. Tripp: You know, this is very important to us.

And so in our -- our first position about that is that we just don't think that Congress did that. This statute is materially identical in its wording to five earlier statutes, none of which have ever been interpreted that way.

When Congress wanted to address this --

Sonia Sotomayor: Except the FBA has interpreted this contrary to you; so has the GAO.

Zachary D. Tripp: The FBA -- the FBA took that position, and the FAR counsel, which represents the entire procurement policy of a broad, pan-executive branch procurement agency, rejected it.

So it said that it was going to be unworkable, and that it was unclear whether it would offer us a --

Elena Kagan: Mr. Tripp, I guess I'm not sure I understand.

I mean, I understand your policy concerns and -- and the way you think this will damage procurement practices.

But the statute just seems pretty clear.

Once you say that this is a contract, what you've said in your brief and right now.

And once you say that, it just -- the statute says, "A contracting officer of the department shall award contracts on the basis of competition restricted to veterans' small businesses." So that seems to kind of answer the case, whatever the policy identifications are.

Zachary D. Tripp: Well, I -- I think the basic problem with that is if you take that sort of -- just like sort of a 1L understanding of contract and -- and blow it through --

Elena Kagan: Well, it's your own understanding of contract.

You just said this is --

Zachary D. Tripp: No, no.

Elena Kagan: -- contract.

Zachary D. Tripp: But -- but the problem is that there's many Federal procurement statutes that apply when the -- when the Federal government, quote, "awards contracts." That's what five prior small business contracting preference statutes say.

They apply when there are either awards contracts, award contract opportunities, or reserves contracts.

And -- and the two most basic statutes in the area --

Elena Kagan: But as I understand it, all of those contracts have a "may" in there.

Zachary D. Tripp: No.

Elena Kagan: Or almost all of them do.

Zachary D. Tripp: Well, one of them has always had a "shall." One had "shall for 13 years." But if I could get to another --

Elena Kagan: Yeah, but -- but most of them have a "may." But here you have -- and -- and the "shall"s, the one or two that there are, have really never been adjudicated by -- certainly by this Court.

Zachary D. Tripp: Right.

Elena Kagan: So the question is, well, there we are.

We are, you know, for the first time deciding what this language means, and this language means that you shall award contracts on the basis of this restricted competition.

And you say this is a contract, so you know, end of case.

Zachary D. Tripp: Well, so a couple points. The -- the very basic statutes that govern sealed bidding and negotiated bidding, the most heavyweight procedures for awarding a new contract, they both say that the government shall award a contract under those procedures.

And if you extend those to the FSS, that would totally break. The whole point of entering into these kinds of contracts upfront is that you don't have to do that again and again.

And when a local VA hospital needs to order like stents or wheelchairs or an ultrasound machine --

Sonia Sotomayor: But I don't understand your policy argument.

Why is it so tough for you to -- to get those things from an FSS -- from an FSS vendor if it's a veteran? I mean --

Zachary D. Tripp: Well, I mean, we often do. We're -- we're currently --

Sonia Sotomayor: This year --

Zachary D. Tripp: We're currently exceeding our goals on -- if you look only at our FSS spending at --

Anthony M. Kennedy: But the question -- I think the question is, it's -- it's a matter of just --

Zachary D. Tripp: Yeah.

Anthony M. Kennedy: -- pushing a second button on the computer.

Zachary D. Tripp: No, it's not.

It's --

Anthony M. Kennedy: First of all, I want to see what -- what's the FSS -- FSS, and then I want to see if there are any veterans-owned businesses that provide that service or that product on the FSS.

push two buttons.

That's it.

Zachary D. Tripp: Yeah.

I think that -- the practical, sort of, front end of how difficult -- if we are -- if we're talking about using the Rule of Two to choose among qualified FSS vendors, how difficult is it to do that, the upfront cost is not that big.

The -- the bigger concern, practical concern that we would have is the litigation risk that that would expose. Right now, our choice of whether to do a set-aside when choosing among FSS vendors, that is committed to agency discretion by law because when Congress addressed this point head-on in 644(r), it said that agencies may, at their discretion, do this. But if suddenly the Rule of Two applies in every case, then in every case a disappointed bidder can come in and say, oh, no, you've misapplied the Rule of Two.

You should have thought that they --

John G. Roberts, Jr.: Well, in every case there has to be -- we're dealing with small -- veteran-owned small businesses.

The examples you gave, stents, wheelchairs, ultrasound machines, are there many small businesses that provide ultrasound machines?

Zachary D. Tripp: I guess I -- I don't know about ultrasound machines, but we've bought things like --

John G. Roberts, Jr.: There are expensive, big things that you expect you have to be a big company to provide, like an ultrasound machine, or you mentioned stents. Now maybe if they're commodities, then to provide fair price and best value, it also would help to be a big business as opposed to a small business.

Let me -- I -- I can't imagine the small business is going to make a stent that is going to be at the same price and same quality as some --

Zachary D. Tripp: No, but we do a lot of --

John G. Roberts, Jr.: -- pharmaceutical company.

Zachary D. Tripp: I mean, 13 percent of our FSS dollars go to small businesses, and a lot of it are for things like professional staffing, right? So we hire temporary nurses and psychiatrists, cardiologists, things like that, through --

John G. Roberts, Jr.: 13 percent of your acquisitions?

Zachary D. Tripp: Of our FSS -- when we're spending on the FSS, 13 --

John G. Roberts, Jr.: Okay.

So I should discount your parade of horribles argument by 87 percent.

It's really not as horrible as it sounds.

Zachary D. Tripp: Our concern isn't placing an order.

We're happy -- we're happy.

One of our -- we're -- we're -- like this statute has had enormous effect on our procurement.

We're happy to help veteran-owned small businesses, but it's only one of our priorities, right? Our number one agency priority is caring for veterans. And so our concern is that if you -- if you apply this with this wooden mandate across the board in every case, that it would seriously impair our ability to deliver the quality care that we're trying to deliver.

Stephen G. Breyer: Is this the case? Do I understand this? Am I -- there are three parts to this. Question one in my mind, is it the case that they lose because the agency does not have to apply veterans only where they way exceeded their goal? The answer to that in the opinion would say, we do not reach that question for there are no regulations that suggest that the agency has tried to take that approach.

Am I right so far?

Zachary D. Tripp: That has tried to take the approach of saying that we drop it if we're way over --

Anthony M. Kennedy: Correct.

Zachary D. Tripp: Yeah, right.

Okay.

Stephen G. Breyer: All right.

Then we reach question two, left one open. Question 2 is do they have to choose the Rule of Two in the FSS? And there are two parts to that.

The first part is suppose two veterans qualified are already on the FSS list.

And there we might say, yes, you do in respect to them.

Or we might say, no, you don't.

But if we say yes, you do, at least we don't, in your opinion, wreck the system.

All right. Then we get to Step 3.

There is no veteran on the FSS.

Now what do we do? And there your argument is that, look, everyone on the FSS is a person who has entered into a contract, which contract says that when called upon for further supply, they will give it.

Am I right?

Zachary D. Tripp: Yes.

Stephen G. Breyer: So, therefore, it is that contract, not the contract within the contract that they're talking about.

And were we to say the contrary, we would have to take an architect who has 40,000 pages of things he's going to do, and we change the sentence on page 389 to read 300 rather than 400, and we say that's a new contract, or something like that.

I'm trying to make an argument for you.

It's not a contract within a contract, it is contract to which this refer. Am I way off base or is that what you're trying to say?

Zachary D. Tripp: I think that's --

Stephen G. Breyer: And don't just say it is because you think I'd agree with it, please. (Laughter.)

Zachary D. Tripp: I -- I don't think that's exactly what we're trying to say.

And -- and it's a little hard to know --

Stephen G. Breyer: All right.

Well, if it isn't that, look, these people on the FSS list have already entered into a contract, this is just implementing the contract that they've already entered into.

If you're not saying that, then how in heaven's name do you get out of his argument?

Zachary D. Tripp: We're saying that when we place an order under a preexisting contract, that that is not awarding a new -- awarding a contract within the meaning of these procurement statutes. There have been -- I -- I really do want to emphasize the historical context that's built up over decades about the understanding of this phrase, "throughout Federal procurement law," right? There's five prior statutes on exactly this same subject, and every one of them has been interpreted by the FAR to be categorically inapplicable when placing orders under preexisting contracts. And the -- one of the things that's very troubling about their position is that if you say, well, we want to read a lot into this special provision, 8127(d), it was intended to help veterans, but there's nothing special about the language.

It's almost identical to the language of the HUBZone preference that was in place from 1997 to 2000 that had -- that had -- sorry, 1997 to 2010 that had exactly the same shall award a contract opportunity.

I mean, it was very powerful.

And that the whole -- the whole time since 1978, Congress has had a provision in place saying that each contract in a small dollar range shall be reserved exclusively for -- for small businesses. And if you --

Ruth Bader Ginsburg: Mr. Tripp, this is an -- an overarching problem.

The -- the argument which you state very well is very complex.

The Federal circuit had a really simple take on it, and all of these regulations and provisions that you are mentioning didn't figure at all in -- in the Federal circuit's opinion.

So you're putting us in the position of being a court of first view in a rather dense area.

This -- this Court usually doesn't do that.

It likes to know what --

Zachary D. Tripp: Right.

Ruth Bader Ginsburg: -- other judges have thought about it.

Zachary D. Tripp: Yes, I -- and I -- I totally understand that concern.

And, you know, obviously, our first-line position is that we're right for the reasons that we say in our brief.

This traces through all of the Federal procurement statutes.

It wouldn't upset the -- the way things work in this area of the law, and we think we're also entitled to Chevron deference.

And for that reason, we think you could affirm. But we also said in your mootness briefing that we think it would be fair to send this back to the lower courts to consider these arguments in the first instance --

John G. Roberts, Jr.: Consider --

Zachary D. Tripp: -- we -- we recognize that.

John G. Roberts, Jr.: Consider the argument, or consider mootness?

Zachary D. Tripp: Consider both.

But --

Anthony M. Kennedy: What -- what factors does the secretary look to when the secretary sets goals? Because I'm going back to the argument about for purposes of meeting the goals.

Zachary D. Tripp: I mean, the --

Anthony M. Kennedy: What -- what -- what standards does the Congress impose on the secretary when the secretary sets the goals?

Zachary D. Tripp: It -- it -- the goals are committed to his discretion, except for that the goal -- the minimum goal needs to be at least 3 percent.

The goals since the statute has gone into effect have been in the range of 10 percent and 12 percent.

And I want to emphasize the --

Anthony M. Kennedy: What does he --

Zachary D. Tripp: -- the night-and-day impact.

Anthony M. Kennedy: What does he consider in deciding whether to go 5, 10, 15? The risk of litigation? The higher the goal is? Or --

Zachary D. Tripp: No, I -- no, I think -- I guess, I -- I would -- I would have to -- to speculate on that, but I think it's more the sort of practical reality of what seems like a -- a goal, something that we could push forward that's attainable, but -- but not unrealistic.

And -- and I --

Anthony M. Kennedy: Well, if the discretion is that broad, then it seems to me that maybe the Federal circuit was wrong, that these goals are simply aspirational.

But that doesn't have any real effect on the operation of the statute.

Zachary D. Tripp: Well, they have a huge impact on the way that we actually procure, right? This has had -- I mean, the statute -- before the statute was enacted, we were falling short of even the 3 percent goal.

Now the goals are in the range of 10 to 12 -- 10 to 12 percent, and in most years we're crushing these goals, right? We're beating them, even on the FSS, where we're -- we're not applying the Rule of Two. But we're doing two other very important things for veterans.

We put a thumb on the scale when we're considering offers that were submitted within the FSS by veterans.

And we also do set-asides under 644(r), the statute where Congress spoke very directly to this and said that we may, at our discretion, set aside orders placed against multiple-award schedule contracts.

We do those set-asides, and the -- and the results have been very dramatic.

John G. Roberts, Jr.: When -- I'm sorry. When you say you're crushing the goals, that means you're meeting them? (Laughter.)

Zachary D. Tripp: We're -- sorry.

Sorry. We're -- we're far exceeding them.

In -- in many years we're -- we're nearly doubling them.

And I think this is something that we -- we have -- this has had a huge impact on -- on our operations.

I think we think it's had a big impact on the veterans' community. But the -- the -- our concern is that if you take this sort of mechanical Rule of Two and apply it, especially in the -- sort of the blocking interpretation that Petitioner has been -- been pressing, that we would not be able to place an order at all.

Sonia Sotomayor: Could you please --

Samuel A. Alito, Jr.: Could you explain --

Sonia Sotomayor: -- explain to me --

Samuel A. Alito, Jr.: Could you -- could you explain why the FS -- use of the FSS was important with respect to this particular contract? You provide examples of the VA's ordering standard commodities like a stent, or pencils, or something like that.

But this was -- my understanding -- maybe this is not right -- this was a custom service that you were seeking, and --

Zachary D. Tripp: Yes.

Samuel A. Alito, Jr.: -- what you did was to solicit a quote from a single contractor. So how does that fit in with the arguments you're making about the need to use the FSS?

Zachary D. Tripp: It -- it sort of -- two things about this.

The -- the -- this is a somewhat unusual bid because -- there -- there is not explanation in the record because -- because this case was just litigated on the agreed facts about the procedure. The much more common -- the -- the VA orders a lot of services on the FSS.

It's like one of the major ways that people -- that agencies purchase services.

And the -- the standard way of doing it, it's -- it's -- you know, it's not like Amazon.com, but you can go on to a website, drill down, see all the vendors who -- who are already prequalified to provide that kind of service.

And the standard way that you would do this is that you would request -- request quotes from at least three of them, and then consider them when they come in. And when you request -- request the quote from them, even if you request it from three or four of them, every vendor on the schedule who is preapproved will -- will see that it's open and can submit an offer, and then -- and then the -- the agency would consider all the offers that were given to it, and it picks the one that offers the best value. So that's how it would work if we were doing something like hiring a temporary psychiatrist at a -- at a new -- at a new -- expanding a medical center in Des Moines or something.

Elena Kagan: One of the amicus briefs suggests that the VA is now doing increasingly complex procurements by way of the FSS.

That we have it in our heads that this is all about, you know, staples and paperclips, but that, in fact, the FSS is being used to do things that would previously have been done on the open market.

Zachary D. Tripp: I -- I -- I -- well, first, I want to emphasize that the VA's primary use of this, again -- this is not -- I'm not talking about staples and paperclips.

We're talking about, you know, the -- the medical-related stuff, the, you know, wheelchairs, stents, all that -- temporary staffing services. But yes, a lot of the FSS -- even for more complex procurement, the FSS is still substantially easier.

And the FSS, you tend to already be sort of aggregating the government's buying power.

And so the pricing is -- the idea of the -- of the FSS is that it's both easier to do and that the price will ordinarily be lower. And so -- I mean, the -- the agency wouldn't be going into the FSS if the agency didn't think that that was the -- the best approach.

And in fact, whenever the procurement is over half a million dollars, I believe, the FAR requires the contracting officer to make an affirmative, express determination on exactly that point: That -- that going through the FSS is going to provide the best value for us overall. And I -- and just to respond to Petitioner's effort to put a lot of weight onto the best-value language in the -- in the Rule of Two, I'm a little confused by that because -- exactly because when -- whenever the agency is placing an order under the FSS, under the FAR, that -- that the -- the contracting officer is making a determination that that order is the best value.

So I -- I guess I just -- I -- I feel like that -- that may just collapse on its own weight.

I don't -- I don't quite understand where that argument goes.

Elena Kagan: Mr. Tripp, can -- can I ask, what effect would this statute really have on your view? As I understand it, the government does have to use the Rule of Two on all open-market purchases; is that right?

Zachary D. Tripp: Under the statute, our regulations implemented it, yes.

Elena Kagan: Above, like, a very low threshold? Is it 3,500, something like that?

Zachary D. Tripp: Yes.

Right, right.

Elena Kagan: So -- so if you're right, what did this statute actually accomplish? In other words, you already have to use the Rule of Two for open-market purchases, or almost all of them.

Zachary D. Tripp: Oh, right.

Elena Kagan: What does the statute do?

Zachary D. Tripp: Yes.

It -- so 8127(d) has a -- has a huge effect, because under the -- just the -- sort of the regular FAR, you just have to do a set-aside for small businesses, right? That's -- that's sort of norm under the -- under the Rule of Two. But under 8127(d), this required to -- to restrict competition only to veteran-owned small businesses who are in our database.

So this is a far more --

Anthony M. Kennedy: Who --

Zachary D. Tripp: Only in our -- who are verified as veteran-owned in our database. So this is a far more powerful preference than the -- than -- than the ordinary preference in -- in the FAR, or even when you take that and you couple it with section 8128, which they mention in the brief, which gets at, again, just sort of putting a -- a bit of a thumb on the scale.

Restricting competition is a very powerful thing, and it has a huge effect. So again, I think, I just want to emphasize at -- at closing that our -- our major concern is with Petitioner's sort of blocking interpretation that would prevent us from -- from placing orders at all, even when we have them in place, and even when we could place orders with another veteran-owned small business.

Sonia Sotomayor: And you still haven't answered my question fully. If we limit that to preexisting orders where there is two or more veterans --

Zachary D. Tripp: Yes.

And I -- and -- and --

Sonia Sotomayor: -- on the same practical consequences.

Zachary D. Tripp: The -- the practical consequences are much narrower.

I have -- but I have a lot of trouble seeing how you limit that to this statute when the language of this statute is materially identical to --

Sonia Sotomayor: Like we limit everything else.

Once we say what we think, Congress then decides what it's going to do in the future.

Zachary D. Tripp: Are -- are they --

Sonia Sotomayor: Right now, there are no statutes like that.

Zachary D. Tripp: No, no, no.

There is -- there is five others on -- on the exact subject of small-business contracting preferences, and especially 644(j), which applies across the government and says that each contract --

Sonia Sotomayor: The Small Business Administration has read it the way Kingdomware --

Zachary D. Tripp: No, that -- but that was decisively rejected by the FAR counsel, the government-wide body that considered this.

They said it was unworkable, and it was unclear that it was going to have a significant upside.

Congress responded to the FAR council by enacting 644(r) and establishing a procedure to do that, but making it discretionary in all cases. And if you extend the Rule of Two mandate there, first of all, it would expose us to lots of litigation.

But I -- I -- again, I don't see how you restrict that to this statute and not all the other ones.

Anthony M. Kennedy: Do -- do you know what proportion of the VA's annual purchases are under the FSS?

Zachary D. Tripp: By dollar?

Anthony M. Kennedy: Yes.

Is it 5 percent, or --

Zachary D. Tripp: I think it's about 20 percent.

Zachary D. Tripp: About 20 percent, yes.

Ruth Bader Ginsburg: What was the 60 percent? There was a 60 percent figure.

Zachary D. Tripp: The -- the 60 percent is by transaction volume.

You know, a lot of the FSS orders tend to be relatively small dollar order.

So there's a lot more of them, but they don't add up to as many dollars.

Anthony M. Kennedy: I see.

Elena Kagan: What are the kinds of things that aren't done under the FSS? Like, what's the remaining 80?

Zachary D. Tripp: Well, you know, a big part of that are orders that we do under other contracts.

So -- so, right, we spend $4 billion a year ordering pharmaceuticals under a preexisting contract.

And -- I mean, if we couldn't do that, that would be really, really devastating to our just basic operations.

John G. Roberts, Jr.: Well, how -- do you know how many veteran-owned businesses would be able to offer the best value on pharmaceuticals to the VA?

Zachary D. Tripp: No.

What I'm -- what I'm -- if -- I think actually if the question is just, you know, to -- if -- if a small business needed to deliver some penicillin to a -- a local hospital for an individual order by a local hospital, I don't know, maybe a veteran-owned small business could do that. What we've done is to -- is -- as -- actually, as Congress directed us in Section 8125, they required us to buy these things on national contracts or on the FSS, and so that's what we've done.

And so we strategically source all of our pharmaceutical purchases, or almost all of them, through this one contract where we can get them in a matter of minutes. We can place the order and we can get it delivered the next day. If there's no further questions.

John G. Roberts, Jr.: Thank you, counsel. Mr. Saunders, four minutes.

Thomas G. Saunders: Thank you.

Thomas G. Saunders: Thank you. This case should begin and end for this Court with the concession that in the ordinary sense of the term, an order under the FSS is a contract. Congress chose sweeping language here in acting its mandate, and that language encompasses FSS orders.

And to the extent there are, you know, changes that would need to be made or other policy considerations, those can be made by Congress in the future.

But the policy consideration it made is -- is embodied in the statutory language it chose. Now, the idea that we're going to come back and limit this based on a specialized meaning of the word "contract," we should remember that that argument is not one that appeared in this case until the government's merits brief in this Court. If it's a settled background interpretation that -- that Congress was incorporating that limitation into the Act, you think it would have occurred to them in the last decade, the carve-outs for the Small Business Act exceptions were never justified based on providing a narrower meaning of the word "contract," and on their face were expressly limited to the Small Business Act, the provision that applied to part 19 of the FAR implementing the Small Business Act. Well, to the extent there's an exception for the Small Business Act, well, Congress came in here is it rejected the Small Business Act approach.

Rather than continuing to tinker within the framework of the Small Business Act where this exception applied, it said we're taking this mandate out of the Small Business Act, we're going to narrow it, it's not going to be a government-wide mandate, but we're going to apply it specifically to the VA in light of its unique obligations and set the VA up as the driver of procurement in this area; have it set the example for the rest of the government. Congress was making -- balancing these policy considerations.

It wasn't going to be blundering into something that was administratively unworkable. And if you -- the dire consequences that we're hearing today really stood any chance of coming to pass, I don't think that you would have the American Legion, the Iraq and Afghanistan veterans, 41 members of Congress, who care deeply about veterans issues, supporting Kingdomware's position in this case. The reality is if the government's only doing 20 percent of its procurements from FSS, you're already talking about a broad mandate.

And then with respect to those existing ones, you have to have a business that is eligible, it has to appear in the database, and it has to be able to offer a fair and reasonable price and best value. And as the -- the Chief Justice discussed for some of these big order commodity contracts, that it's going to be a difficult fight for the -- for the drugs that are being offered here, there's a statutory provision that says that the government acquires its drugs at 76 percent of the average price that wholesalers pay to the manufacturers.

So take the average price that anyone else in the world can get from the manufacturer and do a big discount on top of that. Those are tough terms to beat. And so I think that there's going to be -- you know, the reality here is not the dire consequences that you're seeing, and the policy judgment is for Congress.

And believe me, if anything in this mandate enforced as written is going to hurt veterans in any way, then you can expect Congress will act swiftly to correct that problem. But none of this supports the sweeping carve-out that the government is saying that it doesn't even have to look at its own database.

It doesn't have to consider a single veteran-owned small business, no matter how competitive it would be, because it can go straight to the Federal suppliers.

Anthony M. Kennedy: What response do you have to judge -- Justice Ginsburg's question that really you're making us a court of first impression here? Shouldn't we send this back?

Thomas G. Saunders: I don't think we should because the meaning of "contract," this is a straight-up question of law.

And the reality is that the veterans who are waiting for this law to be enforced as written have already waited a decade.

And for -- to send it back and have additional delay on a pure question of law based on a new argument that the government's making for the first time here sets a very bad precedent.

John G. Roberts, Jr.: Thank you, counsel. The case is submitted.