OHA: Provisions in Operating Agreements for SBA Set-Aside Program Participants can Sink Eligibility

The organizational documents for a business seeking certification under a SBA socio-economic program can play an important part in a company demonstrating its eligibility under the SBA’s requirement for control by the company’s owners, such as a service-disabled veteran or disadvantaged owner. Unlike some of the SBA’s requirements for eligibility, the manner in which a program applicant or participant might run afoul of this requirement are not always obvious. Typical provisions in the organizational documents that, under “non-SBA” circumstances may seem innocuous, may unintentionally undermine the disadvantaged owner’s requirement of showing of unconditional ownership and control. 

In a recent OHA decision regarding Service-Disabled Veteran-Owned Small Business (SDVOSB) eligibility, (CVE Protest of: Randy Kinder Excavating, Inc.  d/b/a RKE Contractors, Protester Re: E&L Construction Group, LLC), an unsuccessful bidder filed a protest of a set-aside contract award, alleging that the company was not unconditionally controlled by the disadvantaged owner. After considering a variety of arguments, OHA issued a decision based on a handful of provisions in the respondent’s operating agreement.

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SBA OHA: Joint Ventures Can Be LLCs

Joint ventures can be formally organized as limited liability companies–and that should come as no surprise, given how often joint ventures use the LLC form these days.

In a recent size appeal decision, the SBA Office of Hearings and Appeals rejected the argument that, because a company was formed as an LLC, its size should not be calculated using the special rule for joint ventures.  Instead, OHA held, the LLC in question was clearly intended to be a joint venture, and the fact that it was an LLC didn’t preclude it from being treated as a joint venture.

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