Amended Bylaws Can’t Rescue Ineligible SDVOSB

The regulations governing the SBA’s service-disabled veteran-owned small business program are clear: to qualify as an SDVOSB, a business must ensure that a service-disabled veteran serves as its highest officer.

The SBA will examine a SDVOSB’s bylaws to see whether the provision is met.  If not, belatedly amending the bylaws won’t save the business’s eligibility for a contract it bid upon before the amendment, as demonstrated by a SDVOSB appeal decision of the SBA Office of Hearings and Appeals.

In SDVOSB Appeal of Markon, Inc., SBA No. VET-158 (2009), the Department of Homeland Security identified Markon, Inc. as the apparent successful offeror on a SDVOSB set-aside procurement.  A competitor filed a SDVOSB eligibility protest, challenging the award.

When the SBA examined Markon’s bylaws, it discovered that although a service-disabled veteran owned the majority of the firm’s stock, a non-service-disabled veteran served as the company’s president, its highest officer position.  The SBA’s Director of Government Contracting found that Markon was ineligible because it failed to meet the requirement that a service-disabled veteran serve as the highest officer.

Markon appealed to SBA OHA and asked SBA OHA to admit new evidence: revised bylaws naming a service-disabled veteran as the president.  SBA OHA refused to admit the evidence.

As SBA OHA wrote, “the primary evidence Appellant seeks to submit here documents a change in its By-laws that was not in effect at the time Appellant submitted its offer, which is the date as of which SDVO SBC eligibility is determined.”  Because the amended bylaws were not in effect at the date of Markon’s offer, the bylaws “cannot be relevant” to Markon’s SDVOSB eligibility for the procurement in question.

Markon’s amendment wasn’t totally in vain: by amending its bylaws, it likely became eligible for future SDVOSB procurements.  But future eligibility was probably little comfort to Markon as it saw its DHS contract slip away.

SDVOSBs should take heed from Markon’s predicament: make sure your corporate documents are compliant before you submit your next offer.  By the time a competitor files a SDVOSB protest, it’s too late to fix them.

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