The U.S. Department of Veterans Affairs ("VA") issued a proposed rule on Jan. 10, 2018, that would give the U.S. Small Business Administration ("SBA") responsibility for regulations related to the ownership and control requirements for small businesses to qualify as VOSBs. Removing this responsibility from the VA is in line with the 2017 National Defense Authorization Act (“NDAA”) (Pub. L. No. 114-328, Section 1832(a)(1)) and recent court decisions (Veterans Contracting Group, Inc. v. U.S., Court of Federal Claims Dkt No. 17-1188C, Dec. 20, 2017) that have criticized the agencies for their different approaches in verifying veteran ownership. The proposed rule can be viewed here. It is open for public comments through March 12, 2018.
To qualify as a VOSB or SDVOSB, the business entity must not only be “owned” by a veteran or service-disabled veteran, but that veteran/service-disabled veteran must also “control and manage” the business on a day-to-day and long-term basis. As a result, ownership and control (“O&C”) are a couple of the key aspects of the business that are examined by the VA and the SBA to verify that the business is in fact veteran-owned.
Currently, both the VA and the SBA can verify whether a small business qualifies as a VOSB, but their applicability and ownership requirements are different. The VA’s certification program, called the Vets First Verification Program, provides the VA with the sole authorization to certify businesses as VOSBs and SDVOSBs for VA procurements. The VA’s certification program is extremely detailed and completely independent of the SBA’s SDVOSB set-aside program. The SBA’s SDVOSB program is a self-certifying program in which small businesses are able to self-certify as being service-disabled veteran owned for purposes of pursuing contracts with agencies other than the VA. The SBA’s self-certifying SDVOSB program is not changing.
It is the VA’s certification program that is changing. The VA is proposing to remove all references in its regulations to O&C issues (i.e., those in 38 CFR Part 74). According to the VA’s proposed rule, it will keep its internal certification program and some of its procedures, but it will use the SBA to make determinations regarding O&C and affiliation. The VA also proposes to use its Center for Verification and Evaluation (“CVE”) to assist VA contracting officers in identifying VOSBs, and to communicate with the SBA on the small business status of entities.
The VA’s proposed rule proposes to adopt the SBA’s regulations governing small business programs (13 CFR Part 125) and the SBA’s affiliation regulations (13 CFR Part 121). While 13 CFR Part 125 is limited to SDVOSBs, under the proposed rule, these regulations will incorporate by reference the same ownership criteria and same definition of “control” for VOSBs. And, pursuant to 13 CFR Part 121, the SBA (not the VA), will make affiliation determinations.
At the end of the day, if the proposed rule becomes final, the SBA will have jurisdiction over the most significant issues pertaining to VOSB certifications.