You’ve served your country with pride. Now, as a government contractor, it’s only fair that you get your piece of the pie. Previously, we here at SmallGovCon have discussed the 5 things you should know regarding SDVOSBs and VOSBs. But in the years since that, much has changed in the world of SDVOSBs and VOSBs. So here are five updated basics you should know about the government’s contracting program for veteran-owned small businesses and service-disabled veteran-owned small businesses:
- What is a veteran-owned small business?
As its name implies, a veteran-owned small business (or “VOSB”, in government-contracting speak) is a small business that is at least 51% unconditionally owned and controlled by a veteran. A service-disabled veteran-owned small business (“SDVOSB”) is a small business that is 51% unconditionally owned and controlled by a service-disabled veteran. These definitions sound relatively simple at first blush, but there are many nuances in the law. Just because a small business is 51% owned by a veteran doesn’t necessarily make it an SDVOSB or VOSB in the eyes of the government.
The government currently runs its SDVOSB and VOSB program through the SBA. Previously, there was a separate program run through the VA, but the VA’s program went away on December 31, 2022. Now, SBA’s regulations and program governs all VOSB and SDVOSB certifications.
- Who “controls” the business?
Control can be a subjective concept. But to control the business, the veteran or service-disabled veteran, as the case may be, must exercise unconditional authority over the company’s day-to-day affairs and long-term strategic decision-making. Again, it’s important to be aware of regulatory nuances. For example, the SBA’s regulations generally require the veteran to work full-time for the company to meet the unconditional control requirement.
The SBA and VA have interpreted unconditional control quite strictly: they require the veteran to essentially be the end-all and be-all within the company, with unfettered discretion over some of the most consequential decisions. However, there are five situations laid out by SBA regulation that will allow for the veteran to not have absolute control. These are: 1) Adding a new equity stakeholder; 2) dissolution of the company; 3) sale of the company or all assets of the company; 4) the merger of the company; and 5) the company declaring bankruptcy.
In addition, a recent rule change allows for rights of first refusal for non-veterans. The rules now state: “A right of first refusal granting the non-qualifying-veteran the contractual right to purchase the ownership interests of the qualifying veteran, does not affect the unconditional nature of ownership, if the terms follow normal commercial practices.” 13 C.F.R. § 128.202.
- What’s the benefit?
SDVOSBs and VOSBs are given some important preferences in government contracting. The most significant of these preferences is at the Department of Veterans Affairs: the VA must, in some cases, set aside work for either SDVOSBs or VOSBs. In other cases, the VA can award SDVOSBs or VOSBs sole source contracts. For non-VA agencies, only SDVOSBs (not VOSBs) are entitled to a contracting preference, although VOSB status can be helpful in more limited cases, like helping large prime contractors reach their subcontracting goals. Non-VA agencies, however, can set aside solicitations for SDVOSBs, and issue sole source awards to SDVOSBs in limited circumstances.
Overall, the government aims to award at least 3% of prime contract dollars annually to SDVOSBs. The government surpassed that goal in Fiscal Year 2021, awarding SDVOSBs contracts worth more than 4% of Prime Contracts, representing $25.0 billion in contracts.
- Can a business challenge my status?
Yes. If an SDVOSB or VOSB is given a contract under a contracting preference (or “set-aside” as we call it in Government Contracting speak), a disappointed offeror can challenge the awardee’s status as a veteran-owned small business. Losing a challenge means that your business will lose its award.
These challenges are a double-edged sword. Not only does this mean that a competitor might dispute your eligibility, but you can also dispute that of a competitor that wins a contract. So if a business challenges your status—or if you believe that one of your competitors might not be eligible—make sure you can navigate the regulations to help protect your interests.
- How can your business apply?
This used to be quite complicated with multiple certification avenues that needed to be completed. However, as of January 2023, the SBA will be the one-stop shop for application and certification. As you may know, we here at SmallGovCon have been tracking this change for quite some time. (For background on the rule change check out these articles: “Congress Approved Government-wide SDVOSB Certification Requirement; Transfers CVE to SBA,” “SBA Issues Final Rule on SDVOSB Certification,” and “SBA Provides Answers on Vets Certification Program Roll-Out in Q&A Session“)
The SBA provides some background information on SDVOSBs and VOSBs on its website, and certification is completed through SBA’s veterans.certify.sba.gov. It’s essential to do your due diligence before self-certifying. Incorrectly self-certifying can carry significant penalties—ranging from losing the award to being debarred.
Historically, verification processes such could take several weeks and involve some back-and-forth—in fact, we’ve seen cases in the past under the old certification model where the VA relied on outdated regulations to question a joint venture’s eligibility, when the joint venture agreement was fully compliant with current regulations. Under the SBA’s new process, there could be some hiccups, but hopefully SBA will get things workings smoothly in short order. If you’re considering seeking verification for your small business (or joint venture), act fast—and get help. For even more of the basics on SDVOSB and VOSBs, check out our post from last year, “Back to Basics: Veteran-Owned Businesses and SDVOSB Eligibility.”
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Veterans deserve our respect and gratitude for the selfless service. The SDVOSB and VOSB contracting preferences are but one small way our country can begin to repay this debt.
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This post updates an earlier post on SmallGovCon.