GAO Rules That Kingdomware 'Rule Of Two' Does Not Govern Leasehold Acquisitions Conducted By GSA On Behalf Of VA

The U.S. Government Accountability Office (GAO) ruled on Dec. 20, 2019, that the "Rule of Two" of the Veterans Benefits, Health Care, and Information Technology Act of 2006 (VBA) does not require the U.S. General Services Administration (GSA) to set aside for veteran-owned small businesses any lease procurements conducted on behalf of the U.S. Department of Veterans Affairs (VA). This ruling addresses a question that has long troubled federal real estate practitioners that the U.S. Supreme Court left unanswered in its Kingdomware v. United States decision: Is the acquisition of a leasehold interest an acquisition of goods or services? According to GAO, it is not, and this distinction between goods and services and leasehold interests means that the VBA does not govern the acquisition of leasehold interests by another agency on behalf of the VA.

Major Takeaways

For the first time, an adjudicative body has directly addressed the question of whether the Rule of Two in the VBA applies to GSA acquisitions of leases on behalf of the VA. According to GAO's decision in Cross & Company, LLC, B-417971, 2019 WL 7019035 (Comp. Gen. Dec. 20, 2019), it does not. "Goods and Services," as referenced in the VBA, does not include leasehold interests, even when those leases require design and construction services. Government contractors should be aware that following the Cross & Company decision, agencies with independent leasing authority may determine that the Federal Acquisition Regulation (FAR) does not apply to leasehold acquisitions. Background - The VBA and the U.S. Supreme Court's Kingdomware Decision

In 2006, Congress passed, and President George W. Bush signed into law, the VBA, which requires the VA to set aside procurements for veteran-owned small businesses when the Contracting Officer reasonably believes that there could be two or more small, veteran-owned business that will submit offers (the "Rule of Two"):

Except as provided in subsections (b) and (c), for purposes of meeting the goals under subsection (a), and in accordance with this section, a contracting officer of the Department 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). The Rule of Two requires the VA to set aside procurements for veteran-owned small...