OHA Confirms: SDVOSBs Owed Notice and Opportunity to Respond Before Verification Cancellation

For service-disabled veteran owned small businesses, or SDVOSBs, contracting with the VA, verification by the VA’s Center for Verification and Evaluation, or CVE, is essential. CVE verification is mandatory to compete for VA SDVOSB set-asides and listing on the VA’s Vendor Information Pages (VIP).

The SBA Office of Hearings and Appeals recently confirmed that notice and opportunity to respond to allegations is required before a business’ verification is cancelled.

In Tactical Office Solutions, LLC, SBA No. CVE-104-A (Mar. 18, 2019), Tactical Office Solutions appealed the CVE’s 2018 cancellation of its SDVOSB verification.

Tactical received its first Notice of Proposed Cancellation from CVE in June 2016. The notice requested clarification of Tactical’s relationship with FENS Associates, LLC. FENS’ Managing Partner was the father of Tactical’s sole owner and the two businesses operated out of the same building.

Tactical responded, demonstrating that FENS and Tactical had no relationship beyond arms-length transactions. Tactical rented office space on the second floor of the building, while FENS operated separately out of the first floor. Tactical did hire FENS as a subcontractor for specific projects, but overall, Tactical explained, no one at FENS had any ability or authority to make any decisions for Tactical.

CVE agreed and based on the evidence submitted by Tactical, agreed to maintain Tactical’s verification. Thus, Tactical remained an eligible SDVOSB with its listing on VIP.

 A little over two years later, Tactical received another Notice of Proposed Cancellation much less congenial than the first. In the second Notice, CVE accused Tactical of lying in its response to the initial Notice and alleged that FENS and Tactical in fact co-mingled their accounting practices, shared office space, and shared employees. Notably, CVE did not attach any documents to verify its allegation, but instead relied “almost entirely on ‘findings’ purportedly made by the VA [Office of the Inspector General].”

Additionally, the second Notice cited 38 C.F.R. § 74.2(c), which states that “[i]f, after verifying the participant’s eligibility, CVE discovers that false statements or information ha[d] been submitted by a firm, CVE will remove the participant from the VIP database immediately, notwithstanding the provisions of § 74.22.” Notably, 38 C.F.R. § 74.22(a) generally requires proposed cancellation notices to “set forth the specific facts and reasons for CVE’s findings and will notify the participant that it has 30 days from the date CVE sent the notice to submit a written response to CVE explaining why the proposed ground(s) should not justify cancellation.”

Despite the “immediate removal” language of 38 C.F.R. § 74.2(c), OHA determined that CVE was in fact required to provide specific facts and explanations for its allegations and to provide Tactical a chance to explain itself. “Due to the vague and conclusory nature of the allegations presented,” OHA concluded that CVE had not provided enough “to meet the requirement that Appellant be informed of ‘the specific facts and reasons’ for its proposed cancellation.” Further, OHA stated that “[u]nder 38 C.F.R. § 74.22, it is improper for CVE to base a cancellation decision on issues that the participant has had no opportunity to address or refute.”

While OHA did not explicitly overrule 38 C.F.R. § 74.2(c), which permits CVE to immediately cancel the verification of SDVOSBs it believes has submitted false information during the verification process, OHA’s decision confirms that an SDVOSB has the right to a certain level of due process regarding CVE cancellation decisions.