Veteran Owned Small Business Verification

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The VA CVE is being phased out, as is the SBA’s policy of SDVOSB and VOSB self-certification.  Beginning in 2023, the SBA will verify and certify the status of SDVOSBs and VOSBs.

Jay Blindauer

On January 1, 2021, Section 862 of the National Defense Authorization Act (“NDAA”) for Fiscal Year (“FY”) 2021 provided an end in sight to the inconsistency between the SBA and the VA over what it takes for a small business to qualify as a service-disabled veteran owned small business (“SDVOSB”), or a veteran owned small business (“VOSB”).   This inconsistency arose when the VA was given its own authority to verify SDVOSBs and VOSBs by the Veterans Benefits, Health Care, and Information Technology Act of 2006.   Recognizing the inconsistency and the problems stemming from it, in the NDAA for FY 2017, Congress required the VA to observe the SBA’s rules on ownership and control of a SDVOSB or VOSB.   However, that change to the law still left the VA with its own verification process.   Now, this new change provides for a transfer of the verification process from the VA to the SBA, to be accomplished by January 1, 2023, and the VA Center for Verification and Evaluation (“CVE”) to be abolished.

Because the law contemplates a two-year wind down for the CVE, for the time being, SDVOSBs and VOSBs wishing to do business with the VA for SDVOSB or VOSB restricted procurements will still need to go through the CVE verification process.   As part of the change, the SBA will move away from the present process of SDVOSB and VOSB self-certification, and to a verification and certification process of its own.   Consequently, after January 1, 2023, a self-certified SDVOSB or VOSB will have a one-year period to submit to the SBA a verification application, or generally lose its socioeconomic status.   However, it is worth noting that the new law expressly states that the post-2023 one-year certification period does not apply to contracts and subcontracts with the VA.   Hence, it appears that, after January 1, 2023, an SDVOSB or VOSB in the VIP database will be able to rely on and run out the three-year VIP certification period even if the business does not seek or obtain SBA certification.

How did we get here?

To provide context, here is a synopsis of the modern VA and SBA veteran owned small business contracting programs.

  • The Veterans Benefits Act of 2003 gave Contracting Officers the authority to, under certain conditions, perform competitions restricted to SDVOSBs, and make SDVOSB sole source awards.[3]
  • Pursuant to the Veterans Benefits Act, on May 5, 2004, the SBA issued regulations to create the SDVOSB procurement program.[4]
  • On October 20, 2004, President George W. Bush signed Executive Order No. 13,360 directing, among other things, that the GSA Administrator establish a Governmentwide Acquisition Contract (“GWAC”) for SDVOSBs.   This led to the creation of the Veterans Technology Services (“VETS”) GWAC.   That contract vehicle had an ordering period of 2007 to 2017.   It was replaced by the VETS 2 GWAC, which has an ordering period of 2018 to 2028.
  • The Veterans Benefits, Health Care, and Information Technology Act of 2006 required the VA Secretary to establish goals for awarding VA contracts to SDVOSBs and VOSBs, and to create a database of certified VOSBs and SDVOSBs.[5]   That database is now known as the Vendor Information Pages (“VIP”) (a.k.a. the VetBiz database) under the VA’s Vets First Verification Program, which is administered by the CVE.
  • On March 19, 2008, the VA published its regulations for the verification of SDVOSBs and VOSBs.[6]   Those rules were finalized on February 8, 2010.[7]
  • On December 8, 2009, the VA introduced VA Acquisition Regulation (“VAAR”) Clause 852.219-9 (VA Small Business Subcontracting Plan Minimum Requirements).[8]   The Clause requires an other-than-small business to have a subcontracting plan with SDVOSBs and VOSBs at percentages commensurate with the Department’s SDVOSB and VOSB prime contracting goals.   For FY 2019, the VA’s prime contracting goal was 15% for SDVOSBs, 17% for VOSBs, and an award may be double counted for both categories.[9]   2020 and 2021 goals are presently not available on the VA website.   However, according to the March 2021 issue of @VAVetBiz News, the VA Office of Small and Disadvantaged Business Utilization (“OSDBU”) Executive Director, Ms. Sharon Ridley, states that, for FY 2020, SDVOSBs obtained $1.68 billion (or 23%) of the VA contract spend, and VOSBs obtained $1.72 billion (or 23.6%) of the VA contract spend.[10]   Again, the numbers overlap.[11]
  • On June 16, 2016, the Supreme Court of the United States (“SCOTUS”) issued its decision in Kingdomware Tech., Inc. v. United States.[13]   The decision establishes that, based upon 38 U.S.C. § 8127(d), the VA must set aside a contract (including an order under the Federal Supply Schedule) for SDVOSBs or VOSBs if there is a reasonable expectation that two or more SDVOSBs/VOSBs will submit offers at fair and reasonable prices, even when the VA has already met an annual small business contracting goal.[14]
  • On March 30, 2018, the SBA issued regulations modifying the rules of procedure for OHA to capacitate protests and appeals involving eligibility for the VA’s VIP database.[16]
  • On September 24, 2018, the VA issued regulations effective October 1, 2018 implementing the VA deference to the SBA required by the FY 2017 NDAA.[17]   Similarly, on September 28, 2018, the SBA issued regulations also effective October 1, 2018 providing updated ownership and control definitions for SDVOSBs.[18]
  • The NDAA for FY 2021 included provisions transferring the VA SDVOSB and VOSB verification programs to the SBA by January 1, 2023.[19]

Following Section 862 of the NDAA for FY 2021, what remains the same?

First, although the SBA will become the only game in town for determining whether a small business qualifies as a VOSB or an SDVOSB, the VA will still retain its role in verifying the status of a business owner as a veteran or a veteran with a service-connected disability.[20]   Indeed, the VA is still the VA.

The general qualifications remain the same.

  • “[A] concern must be at least 51% unconditionally and directly owned by one or more” veterans (for a VOSB), or veterans with service-connected disabilities (for an SDVOSB).[21]
  • “[T]he long-term decision[-]making and the day-to-day management and administration of the business operations must be conducted by” the veteran or disabled veteran owners, although there is spouse or permanent caregiver exception for a disabled veteran owner.[22]
  • In the case of an SDVOSB, the disabled veteran owner must have the highest officer position in the company, and possess management experience to the extent and complexity needed to run the business.[23]
  • At the time of initial offer/proposal, the business must be small according to the NAICS code size standard assigned to the solicitation/contract.[24]
  • There cannot be an affiliation or negative control issue that undermines the control of the veteran or disabled veteran owner(s).[25]
  • Veteran owner(s) who do not work normal business hours, or do not live in proximity to the company’s headquarters or center of operations, will likely face government scrutiny over adequate veteran control of the business.[26]

Regarding the marketplace access provided by a certification, a Contracting Officer is supposed to consider fulfilling a requirement through an SDVOSB-restricted competition before performing a general, small business-restricted competition.[27]   However, a VA Contracting Officer has an obligation to restrict a procurement to SDVOSBs or VOSBs before turning to any other small business type.[28]

A Contracting Officer has authority to issue a socioeconomic sole source award to an SDVOSB for a manufacturing contract that does not exceed $7 million, and for any other type of contract that does not exceed $4 million.[29]   However, a VA Contracting Officer can make a socioeconomic sole source award to an SDVOSB or VOSB that does not exceed $5 million.[30]   To be clear, a socioeconomic sole source is different than a sole source justified by circumstances, such as an unusual and compelling urgency sole source.

What to Expect

The SBA Office of Veterans Business Development (“OVBD”), led by Colonel Larry Stubblefield, U.S. Army, Ret., will be taking over SDVOSB and VOSB verification and certification.[31]   Undoubtedly, as the January 1, 2023 transfer date gets closer, OVBD will put out guidance as to what to expect for the new certification application process.   Some of this guidance may also come from the Interagency Task Force on Veterans Small Business Development, which is chaired by Colonel Stubblefield.[32]   The guidance will be distributed through Veterans Business Outreach Centers (“VBOCs”) throughout the country.

As part of the VA’s current certification process, CVE’s Veterans Enterprise Management Solution (“VEMS”) portal seeks information and documents that are arguably not necessary to showing veteran/disabled veteran ownership and control.   So, it will be interesting to see what information and documents OVBD ultimately seeks as part of its certification process.   At this juncture, probably the best preview as to what the new process will look like is beta.Certify.sba.gov, the SBA’s new online application site for Woman Owned Small Businesses (“WOSBs”) and Economically Disadvantaged Woman Owned Small Business (“EDWOSBs”).   That site provides checklists of required information and documents which show the SBA’s current thinking on certification applications, and therefore an approach that OVBD may take.

Key Takeaways

  • Generally, predictability and consistency is good for business.    Having only one government authority set the standards better achieves that.   Hence, going forward, the possibility of confusing, inconsistent results should be lessened.   For example, consider the 2017 Veterans Contracting Group, Inc. case, where OHA found that a disabled veteran owner did not have unconditional ownership of the business under the SBA’s rules.   See SBA No. VET-265 (Aug. 31, 2017).   At the same time, OHA recognized that the owner possessed unconditional ownership under the VA’s rules.   See id.   Such an inconsistent result calls into question the merits of both sets of rules.
  • As is the prevailing trend for the SBA, self-certification is going away.   And it’s easy to understand why.   Simply, self-certification is not optimal for compliance.   Too often self-certification does not prompt the attention to detail to avoid ownership and control pitfalls, such as affiliation and negative control issues, which can be tricky.   For example, take the DoD OIG’s February 18, 2020 report which found 27 DoD contracts (totaling $827.8 million) that were awarded to contractors that did not meet SDVOSB status requirements.[33]
  • Section 862 requires the SBA to verify and certify VOSBs, providing much-needed statutory support for a class of small businesses that is too often ignored.   Further, to help facilitate, Section 862 requires the VA to annually pay for the SBA’s VOSB certification process.   Hopefully, this is the beginning of more government focus on VOSB contracting opportunities.

An alloy is stronger than its constituent metals.   By consolidating the VA and SBA functions, there is the possibility of creating a better program.   Particularly, if the accumulated insights of both agencies are distilled and brought to bear, ideally that will result in a certification and re-certification regime that is more efficient, less burdensome, and more transparent for veteran owners, easier to administer for the SBA, and more reliable for contracting officers.    Here’s to hoping.   Also, with a consolidated program, it may open the door to other possibilities, such as the SBA prevailing upon Congress to create a governmentwide sole source authority for VOSBs, to increase the dollar threshold of sole source authorities to keep pace with inflation and the government’s increased contract spending, and have DoD give restricted competition priority to SDVOSBs and VOSBs.

[1] See Pub. L. No. 106-50, Title V, § 502, 113 Stat. 233, 247 (Aug. 17, 1999) (codified at 15 U.S.C. § 644(g)(1)).

[2] See 15 U.S.C. § 644(g)(1).

[3] See Pub. L. No. 108-183, Title III, § 308, 117 Stat. 2651, 2662 (Dec. 16, 2003) (codified at 15 U.S.C. § 657f).

[4] See Small Business Size Regulations; Government Contracting Programs, 69 Fed. Reg. 25,262-25,273 (May 5, 2004).

[5] See Pub. L. No. 109-461, Title V, § 502, 120 Stat. 3431-35 (Dec. 22, 2006) (codified at 38 U.S.C. § 8127).

[6] See VA Veteran-Owned Small Business Verification Guidelines, 73 Fed. Reg. 29,024-29,032 (Mar. 19, 2008).

[7] See VA Veteran-Owned Small Business Verification Guidelines, 75 Fed. Reg. 6,098-6,108 (Feb. 8, 2010).

[8] See VA Acquisition Regulation: Supporting Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses, 74 Fed. Reg. 64,619, 64,636-64,637 (Dec. 8, 2009).

[9] https://www.va.gov/osdbu/library/accomplishments.asp.

[10] https://www.va.gov/OSDBU/docs/VAVetBiz_News_Winter_2021_PAB_March_18.pdf.

[11] It is also worth noting that for a prime contract with an other-than-small business that does not include VAAR Clause 852.219-9, the VA recommends, but does not require, a subcontracting goal of 7% for SDVOSBs, and 5% for VOSBs.   See https://www.va.gov/opal/nac/fss/sbsp.asp.

[12] See Pub L. No. 111-275, Title I, § 104, 124 Stat. 2864, 2867-68 (Oct. 13, 2010).

[13] See Kingdomware Tech., Inc. v. United States, 136 S. Ct. 1969, 1977-78 (2016).

[14] It is worth noting that the VA’s statutory version of the so-called “Rule of Two” is different than the FAR 19.502-2 and 13 C.F.R. § 125.22 “Rule of Two” that most procuring agencies follow.

[15] See Pub. L. No. 114-328, Div. A, Title XVIII, § 1832, 130 Stat. 2000, 2659-60 (Dec. 23, 2016); see also 15 U.S.C. § 632(q).

[16] See Rules of Practice for Protests and Appeals Regarding Eligibility for Inclusion in the U.S. Department of Veterans Affairs Center for Verification and Evaluation Database, 83 Fed. Reg. 13,626-13,632 (Mar. 30, 2018).

[17] See VA Veteran-Owned Small Business (VOSB) Verification Guidelines, 83 Fed. Reg. 48,221-48,232 (Sept. 24, 2018).

[18] See Ownership and Control of Service-Disabled Veteran-Owned Small Business Concerns, 83 Fed. Reg. 48,908-48,915 (Sept. 28, 2018).

[19] See Pub L. No. 116-283, Div. A, Title VIII, § 862, 134 Stat. 3388 (Jan. 1, 2021).

[20] See 38 U.S.C. § 101.

[21] See 13 C.F.R. § 125.12.

[22] See 13 C.F.R. § 125.13(a).

[23] See 13 C.F.R. § 125.13(b).

[24] See 13 C.F.R. § 125.14(a).

[25] See 13 C.F.R. § 121.103.

[26] See 13 C.F.R. § 125.13(k) and (l).

[27] See FAR 19.1405(a)(3).

[28] See VAAR 819.203-70.

[29] See FAR 19.1406(a)(2).

[30] See VARR 819.7007 and 819.7008; see also 38 U.S.C. § 8127(c).

[31] See 15 U.S.C. § 657b.

[32] https://www.sba.gov/offices/headquarters/ovbd/resources/14372.

[33] https://www.oversight.gov/sites/default/files/oig-reports/DODIG-2020-063.pdf.