L & R Alert January 2016

January 2016

VA Proposed Rule: VA Veteran-Owned Business (VOSB) Verification Guidelines

            On November 6, 2015, the Department of Veterans Affairs (VA) issued a proposed rule to amend its regulations governing the VA Veteran-Owned Small Business Program.  The proposed rule responds to criticisms that VA’s current verification regulations are too strict or unclear.  In the preamble to the proposed rules, the VA comments that it aimed to strike a balance between preventing fraud in the program and making it easier for veteran-owned companies to get verified.
The most significant proposed change in the rule addresses whether a veteran “unconditionally” owns a veteran-owned business.  The current regulations state that a veteran’s ownership should not be subject to conditions which cause or could cause “ownership benefits to go to another.”  The proposed rule adds a caveat to this rule, stating that CVE will analyze conditions on a “case-by-case basis.”  Specifically, the proposed regulations state that conditions which CVE determines to be “commercially reasonable business practices” will not be considered a prohibited condition under the rule.  The proposed rule, however, does not identify what CVE considers to be “commercially reasonable practices.”  Instead, the proposed rule states CVE will consider “factors, including but not limited to, general use of similar conditions by concerns within the same or similar line of business and uniform applicability of the condition(s).”
            A similar change is proposed for the provision regarding “control” of a veteran-owned business.  The current rule requires the veteran to control day-to-day operations as well as the long- term decision-making of the company.  The proposed rule, however, allows non-veterans to be able to block certain “extraordinary business decisions” considered by the company. In this instance, CVE does cite examples of “extraordinary business decisions” that may be subject to an unanimous vote such as acceptance of new capital contributions, addition of members to an LLC or partnership, amendment of an operating or partnership agreement in a manner that materially alters members’ rights, material amendments to by-laws, issuance of additional shares of capital stock, and the sale or lease of all or substantially all of a concern’s assets.
            In addition to these proposed changes, the proposed rule confirms certain CVE policies already in place or clarifies existing rules:

  • Joint ventures may apply to the VetBiz Verification program under certain circumstances;
  • The verification eligibility period is changed from 12 months to two years consistent with an earlier amendment to the regulations;
  • A VOSB that experiences a change in ownership has 30 days to submit a new verification application in order to remain eligible;
  • A VOSB has 30 days to inform CVE of any changes that would adversely affect a VOSB’s eligibility;
  • Removes the “community property” rule; and
  • Any firm verified in the VetBiz VIP database that is found to be ineligible by a SDVOSB/VOSB or SBA protest decision will be removed from the VetBiz database.
The regulations may be found at 80 Fed. Reg. 687 (November 6, 2015).  Comments were due by January 5, 2016.  If you have any questions, please contact Devon Hewitt, Protorae Law, at dhewitt@protoraelaw.com.

SDVOSB Protest Jurisdiction: SBA Office of Hearings and Appeals Decision

On a related note, in December 2015 SBA’s Office of Hearings and Appeals (OHA) issued a Size Determination that reaffirmed that the VA — specifically the VA’s Office of Small and Disadvantaged Business Utilization (OSDBU) — has exclusive jurisdiction to entertain Service-Disabled Veteran-Owned Small Business (SDVOSB) status protests where the underlying solicitation had been issued by the VA.  In Size Appeal of In & Out Valet Company, SBA No SIZ-5696 (Dec. 17, 2015), a disappointed offeror had argued that the awardee was affiliated with a non-SDVOSB, thereby rendering the awardee ineligible for award.  SBA’s OHA agreed that the entities were affiliated, but declined to declare the awardee ineligible for the award.  SBA stated that it lacked jurisdiction as a result of a 2009 regulation granting the VA’s OSDBU exclusive authority and jurisdiction to handle status protests relating to SDVOSB set-asides issued by the VA.  This regulation was issued in part because the VA maintains its own set of eligibility criteria for SDVOSBs, 38 CFR § 74, which differ from SBA regulations for SDVOSBs bidding on solicitations from other agencies.          
For more information regarding the decision, please contact Steve Ramaley at sramaley@milesstockbridge.com

SBA Proposed Rule:  WOSB Certification Process

The FY 2015 National Defense Authorization Act directed SBA to adopt a process by which it would certify the status of WOSBs.  On December 18, 2015, SBA issued an advance notice of proposed rulemaking seeking comments as to the manner in which the agency should structure the certification process.  The FY 2015 NDAA authorizes certification by a federal agency, a State government, SBA, or a national certifying entity approved by SBA.  In the proposed rule, SBA requests comments on whether these four avenues for certification should remain and the benefits or criticisms associated with each.  The SBA also requests comments “on whether there should be a grace period after implementation to give firms that have self-certified the time necessary to complete the certification process.”  In addition, the SBA wants public feedback on whether the WOSB repository “should continue to be maintained after the certification program is implemented, and if so, why and in what capacity should it be used in the future.” In the notice, SBA stated that it is considering two alternate approaches to certification.  One approach would have SBA adopt a framework under which only minimal documentation is collected and reviewed at the time of an application for certification.  Under this path, the certification process would be faster and the protest process would serve as oversight.  The second path would have SBA adopt a method that includes a detailed initial review, requiring extensive document production.  This path would be a more thorough review but would be more time-consuming for all parties.  The proposed rule can be found at 80 Fed. Reg. 78984 (2015).  Comments must be received on or before February 16, 2016. For more information, contact Marques Peterson at mpeterson@vedderprice.com.

SBA Proposed Rule:  Credit for Lower Tier Small Business Subcontracting

In October 2015, SBA issued a proposed rule that would allow prime contractors with individual subcontracting plans to receive subcontracting plan credit for small business subcontractors at any tier.  Currently, prime contractors can only take credit for first-tier subcontractors under their subcontracting plans.  The proposed rule also requires prime contractors to do more in monitoring and enforcing subcontracting plan implementation and performance by their subcontractors.  This rulemaking was designed to implement subcontracting plan directives in the 2014 NDAA.  Comments were due on December 7, 2015, and 14 comments were submitted.  SBA could issue the final rule by late this year.  The proposed rule can be found at 80 Fed. Reg. 60300 (2015).  For more information contact Jonathan Williams at jwilliams@pilieromazza.com.

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