Recently, the SBA’s Office of Hearings and Appeals determined that SDVOSB owners aren’t always required to personally possess the licenses required for their businesses.
In Veteran’s 1st Architecture, LLC, SBA No. CVE 122-A (2019), Veteran’s 1st appealed the VA CVE’s denial of its SDVOSB recertification application. The business, a Georgia architectural firm, was initially founded in December 2014 and first verified by CVE the following year. Three years later, the business applied for reverification, but was denied.
CVE denied Veteran’s 1st‘s reverification for three primary reasons, all based on the same fact: the service-disabled veteran owner of Veteran’s 1st Architecture was not a state-registered architect himself, though he did employ one. As a result, CVE held that a non-veteran architect “controlled” the architecture firm. OHA disagreed, holding that despite not possessing the license, the owner still maintained control.
CVE first found that because Veteran’s 1st‘s owner did not possess the “critical” architect license, he could not, and did not, control the company’s daily business operations. Relying on Georgia law, CVE determined that “the practice of architecture by a limited liability company “had to be under the “‘responsible control’ of a Georgia-registered architect.”
OHA held otherwise, stating that the “practice of architecture” composed only a portion of the business’s daily operations. Citing the SBA’s regulations, OHA clarified that “‘daily business operations’ are defined to ‘include, but are not limited to, the marketing, production, sales, and administrative functions of the firm, as well as the supervision of the executive team, and the implementation of policies.’”
Accordingly, the SDVOSB owner controlled the daily business operations through “non-architectural activities such as bid preparation and submission, marketing, production, sales, administrative functions of the firm, the supervision of the executive team, and the implementation of policies.”
Second, CVE determined that because the architect held a “critical license,” the owner might not have the requisite power to control the business. 13 C.F.R. § 125.13(i)(6) states that where a “critical license,” or “any license that would normally be required of firms operating in the same field or industry,” is held by a non-service disabled veteran, the non-veteran may be found to control the firm, counter to SDVOSB eligibility requirements. Still, this presumption can be rebutted, and OHA held that it was.
OHA concluded that the owner controlled the firm because, although he was not a licensed architect, he still maintained “ultimate managerial and supervisory control over” the architect he hired. SBA’s regulations do not require service-disabled veteran owners to have the technical expertise or the required license to be found in control of the firm, as long as they maintain ultimate supervision of those that do. As a result, OHA found that the owner adequately rebutted the presumption.
Finally, OHA denied CVE’s third reason for refusing Veterans 1st’s reverification. CVE believed that 13 C.F.R. § 125.13(i)(7) prevented a finding that Veterans 1st’s owner controlled the business because the owner depended on the architect to such an extent that the owner could not exercise the required “independent business judgement.” OHA again held that Veterans 1st rebutted this presumption, particularly because though an architect was necessary for the business to successfully function, the owner could hire any architect.
While a service-disabled veteran owner may not always need to possess all of the licenses necessary to operate their SDVOSB, these issues are often complex and require analysis on a case-by-case basis. This decisions shows that OHA is willing to reverse VA CVE’s decision on verification if CVE didn’t allow the SDVOSB to rebut various SBA rules.
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