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You Need to Know: Court Rulings that Impact Federal Contracts

Friday, September 23, 2016  
Posted by: Ivana Pivovarnik
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You Need to Know: Court Rulings that Impact Federal Contracts

By: Debbie Kobrin, WIPP Government Relations

 

While most federal contract changes happen through Congressional action and agency rule-making, the constitutionality of small business contract practices has been subject to debate over the past several years. Below are two recent cases you should know about.

Rothe Development, Inc. v. U.S. Dept. of Defense et al.,

The U.S. Court of Appeals DC recently upheld the constitutionality of the SBA 8(a) program, designed to help individuals who are socially and economically disadvantaged compete on equal footing  with others in the U.S. economy . To meet that goal, the program provides qualifying small businesses with technical assistance, financial assistance, and assistance in awarding government contracts. The case addressed the programs definition of “socially disadvantaged” as a racial class that violates the right to equal protection under the Constitution. According to Rothe, when the government sets-aside a contract for an 8(a) firm, it unfairly prevents those who are not minority-owned from competing for the opportunity.

While the 8(a) program is colloquially referred to as the minority program, it is open to all socially and economically disadvantaged individuals. However, non-minority individuals must meet a different standard of eligibility.  While the law references specific groups, it does not do so, “as a floor for participation”. Rather, specific groups were mentioned to indicate the “kind of social disadvantage Congress had in mind: individuals’ experience of having suffered racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.”

 

WHAT IT MEANS FOR WOSBs

While the 8(a) program withstood the Rothe challenge, it is not expected to be the last. The WOSB program was structured to only include industries where women-owned firms are underrepresented in order to ensure it could withstand legal challenges. While having a set-aside program based on specific industries may appear limiting, the structure is designed to stand up to this type of legal challenge.

 

Kingdomware v. United States

Earlier this summer, a  unanimous decision by the U.S. Supreme Court in Kingdomware v. United States, requires the U.S. Department of Veterans Affairs (VA) to give a preference to veteran-owned small business for VA contracts. This is contingent upon having two or more small businesses that can meet the requirements — also known as the “rule of two.” This is a big win for all small contractors because the Court made clear that agency contract goals are a floor, not a ceiling. WIPP has advocated for many years for agencies to exceed the five percent goal. This case shows the power of small business goals.

 

WHAT IT MEANS FOR WOSBs

While the decision only applies directly to Veteran-Owned Small Businesses at the VA, SBA is conferring with the Department of Justice, other agencies, and the Federal Acquisition Regulatory (FAR) Council to discuss if further changes to regulations are needed. In the first small contracting case taken up by the Supreme Court, the message to agencies was loud and clear. The “rule of two” is a powerful tool for all small businesses seeking contracts in the federal marketplace and this decision lays the groundwork to ensure WOSBs are given a fair shot on schedule contracts.


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