New Rules Affecting Veteran-Owned Small Businesses (Important to Large Businesses, Too)

Merle M. DeLancey Jr.

Effective October 1, 2018, verification of Veteran-Owned Small Businesses (“VOSBs”) and Service-Disabled Veteran-Owned Small Businesses (“SDVOSBs”) now rests with the Small Business Administration (“SBA”). (See, VA Veteran-Owned Small Business (VOSB) Verification Guidelines.) Previously, the SBA and the Department of Veterans Affairs (“VA”) had concurrent jurisdiction over VOSB/SDVOSB “ownership” and “control” determinations. This led to the confusing and inconsistent results. Now, the VA will no longer vet (pun intended) contractors to determine if they are eligible VOSBs or SDVOSBs. Exclusive authority to verify these businesses is now with the SBA. The new rule clarifies the VA verification process and makes VA and SBA regulations concerning VOSB and SDVOSB joint ventures consistent. The new rule stems from the Fiscal Year 2017 National Defense Authorization Act, Public Law 114-840, which called for the SBA and VA to eliminate inconsistent regulatory interpretations of “ownership” and “control” requirements for VOSBs and SDVOSBs.

Protests of a contractor’s status as a VOSB or SDVOSB based on issues of “ownership” or “control” will be decided by SBA’s Office of Hearings and Appeals (“OHA”). The VA, however, remains responsible for verifying whether the individuals upon which a contractor applies for VOSB or SDVOSB status are veterans or service-disabled veterans. The VA also is required to ensure that VOSB/SDVOSB applicants comply with SBA “ownership” and “control” requirements prior to granting them VA-verified status or including them on the VA’s Vendor Information Pages (“VIP”)—the VA’s online database of verified contractors.

Notwithstanding the goal of consistency and uniformity, there clearly are some “bugs” that will need to be worked out. The SBA’s final rule could result in inconsistent determinations between SDVOSBs and other socioeconomic categories. For example, the final rule includes tweaked and new “rebuttable presumptions” that non-service-disabled veterans control a business. A more limited definition of “extraordinary circumstances” under which a minority investor can have veto power over a firm’s decision-making process but still be eligible is included in the final rule. The final rule also includes certain new definitions (e.g., “permanent caregiver,” “service-disabled veteran,” “surviving spouse,” and “daily business operation”) and also changes service-disabled veteran ownership requirements in partnerships.

The SBA’s final rule is important to VOSBs, and SDVOSBs, as well as large businesses that partner, team, or joint venture with such firms. If you are a VOSB or SDVOSB, you should review the final rule and ensure your by-laws or operating agreements are acceptable under the new regulatory scheme. If you are a large business, request that the VOSBs and/or SDVOSBs with which you contract confirm they comply with and remain eligible VOSBs and SDVOSBs under the final rule.