A recent OHA decision reminds us that it’s important to show and tell the SBA how a company seeking certification is meeting the SBA’s requirements for control of a socioeconomic company. Like many of these decisions involving SBA’s programs, it comes out of the Service-Disabled Veteran-Owned Small Business (SDVOSB) VetCert program. That’s because the SDVOSB program allows appeals of denials of certifications. The other programs don’t allow such broad reasons for appeals from certifications (or at least have restrictions on them).
In Precise Management, Inc., SBA No. VSBC-402-A (October 9, 2024), SBA OHA reviewed a decision to deny SDVOSB certification for Precise Management, Inc. (Precise).
In reviewing the certification request, SBA observed the following red flags that led SBA to request further documentation to establish control by the service-disabled veteran owner (SDV):
- The business address was the address of its minority owner, about 100 miles away from the SDV’s address.
- The sole point of contact in SAM.gov was the non-Veteran.
- Each phone call from SBA was answered by the non-Veteran.
- The SDV had no assigned company email, but the non-Veteran did. The SDV explained the lack of email by signing that, “while not in his name, it was the assigned company email address to which he had access.”
This is a good checklist for prospective SDVOSB companies to review prior to submitting a VetCert application (or have your friendly government contracts attorney go through a similar checklist with you).
SBA asked Precise to provide proof of control. The requests and responses were:
- “Provide copies of ten most recently business checks signed by the SDV. The response was that “the business did not use checks to conduct financial transactions, and so checks could not be used to show” control
- Copies with signatures of five most recent contracts and/or proposals signed by the SDV. All documents provided had a typed signature, as opposed to a handwritten or electronic one, so SBA didn’t view them as showing signature authority.
- A detailed letter showing the roles of each owner in day-to-day operations of the company. Precise responded that the SDV controls various items such as daily schedules for technicians; approving contracts, proposals and invoices; scheduling training for technicians; scheduling training for technicians; approving payroll; scheduling company meetings and vehicles maintenance; reviewing company bank account activity.
- SBA asked for the ten emails or other communications showing daily activity by the SDV as outlined in the letter. Precise responded that daily communications were handled by the non-Veteran owner.
SBA denied the VetCert application based on insufficient proof that the SDV controlled and managed daily business operations, as required by 13 C.F.R. § 128.203(a).
On appeal, SBA OHA reaffirmed the denial, based on the SBA rules for SVOSB certification. These rules place the burden on the applicant to establish eligibility, via “the totality of circumstances, including facts set forth in the application, supporting documentation, any information received in response to any SBA request for clarification, any independent research conducted by SBA, and any changed circumstances.” 13 C.F.R. § 128.302(d). The same regulation notes: “[I]f a concern submits inconsistent information that results in SBA’s inability to determine the concern’s compliance with any of the VOSB or SDVOSB eligibility requirements, SBA will decline the concern’s application.”
OHA noted some errors in SBA’s denial determination:
- The distance of the SDV to the place of business is not a proper factor, as the regulation has removed that former close proximity rule.
- Signatures on documents are valid electronic signatures, and SBA rules allow for such signatures.
- Paper checks are less common, so their absence is not indicative of lack of control.
But the VetCert program was right on other fronts in denying the application, so any error didn’t affect the final determination.
OHA pointed to a number of facts that SBA properly relied on in denying the application.
[Precise] was frequently unable to produce correspondence signed by Mr. Wright [the SDV] on behalf of the business, that Mr. Wright had no email account of his own, and that he was never available on the telephone, despite SBA’s many attempts to reach him. While the record reflects [Precise] was able to provide a few examples of forms and contracts that contained a valid electronic signature from Mr. Wright in attempting to satisfy that same request, [Precise] was equally likely to provide printed-out pages of already-paid invoices, with those pages appearing to be electronically signed by Mr. Wright after the fact.
Furthermore, when SBA asked Precise to provide five documents showing control over operations, that Precise “was just as likely to proffer invoice documents which showed tenuous (at best) signature authority as opposed to documents such as contracts and financial forms in which a valid signature would be required was a curious decision on the part of” Precise, and failed to show SDV control.
In addition, SBA asked for documentation of the many tasks that Precise said were handled by the SDV. But Precise failed to provide any of these documents. “Given that approving documents such as contracts and proposals is apparently one of the main tasks within the qualifying veteran’s purview, it is baffling that [Precise] was not able to timely proffer even five documents with Mr. Wright’s valid signature evidencing this core function.”
OHA also found the email issue to be “even more disconcerting.” During the OHA appeal, Precise provided numerous emails with SBA that showed that the “non-Veteran controlled the vast majority of correspondence from the company’s (evidently) only email account,” but there were also emails from the SDV. But none of these were provided to SBA during the SDVOSB application process.
The SDV “had no email account, signed little to no correspondence, and was never available via telephone to discuss the business.” This was enough for OHA to uphold the denial of certification.
This case is a good reminder of what SDVOSB applicants should review prior to submitting an application. It’s also a good reminder for those applying to one of SBA’s other programs. SBA will look at commonly available public documents (website, SAM record, place of business) and may call the applicant to see who answers. It’s not enough to describe control by an SDV, be prepared to provide recent documents showing control by the SDV. If those aren’t available, it may make sense to delay application to build up a paper trail showing control by the veteran owner.
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