Most of SBA’s socioeconomic programs (woman-owned small business, veteran-owned small business, HUBZone) have a requirement for the contractor to go through a recertification process, or program examination, every three years. 8(a) Participants have an annual review process, so they are reviewed even more frequently. But between these routine program recertifications, there is a possibility that the SBA will choose to perform an additional program examination to “verify the accuracy” of certification. And, as one SDVOSB firm found out, failing to cooperate with these interim program examinations can lead to decertification—a fate that no small business wants to risk.
In the case of McLellan Integrated Professional Services, LLC, the appellant, McLellan, suffered such a fate when it failed to respond to the SBA’s program examination. The SBA certified McLellan for a 3-year period in July 2023. However, the letter that approved McLellan as an SDVOSB contained a provision that stated, “SBA may conduct a program examination at your office or work site during your certification period to verify the accuracy of your certification.” Such a program examination is permitted by 13 C.F.R. § 128.308. And SDVOSBs are required to respond to any program examination by 13 C.F.R. § 128.306.
On April 10, 2024, McLellan was notified that it had been selected for a program examination. Accordingly, the SBA requested that McLellan provide responses and documentation that would confirm its SDVOSB eligibility. Having received no response, SBA followed-up on its request twelve days after the initial request.
Finally, still not having heard from McLellan, SBA contacted them again on April 30, 2024. This final attempt at communication included a warning that participants are required to respond to any program examination initiated by the SBA to remain a certified VOSB or SDVOSB. SBA warned that if it did not receive a response by the deadline provided, SBA would be permitted to draw an adverse inference from the failure to cooperate, which could eventually result in decertification.
On May 9, 2024, SBA gave McLellan one last chance to respond to, which it failed to do, and McLellan was decertified on June 14. SBA’s Office of Hearings and Appeals even gave McLellan a chance to submit relevant information while the appeal was pending, but the company failed to do so.
On June 24, 2024, ten days after the decertification occurred, the appeal challenging SBA’s decision was filed. According to McLellan, it received the initial program examination of April 10. McLellan also claimed that it submitted responses to the SBA on May 20. But, it explained, McLellan had changed its address in 2023 and did not notify the SBA. Further, McLellan admitted that its response only included an answer to one of the ten questions asked in the program examination.
On appeal, the appellant bears the burden of proving that the decertification is clearly erroneous. And, in this instance, the appellant failed to do so. OHA noted that McLellan attempted to cure the deficiency by claiming that it had responded with the May 20 response. But there was no evidence, provided by either the company or the SBA, that showed such a response occurred. Therefore, McLellan had failed to cooperate with a program examination which was the basis for decertification. And, even if it had submitted the response on May 20, nine of the ten questions were unanswered and therefore deficient, again creating means for decertification.
So, what are the key takeaways here?
- Respond—fully—to all communications from the SBA. And keep good records. The facts in the case here are a bit hazy, but had the appellant responded fully to each of the ten questions posed by the SBA and if it had been able to produce documentation proving it had done so, it could have possibly been saved from being decertified.
- The SBA programs have their own program examination regulations, and all of them permit the SBA to conduct program examinations at any time after the concern submits its application, during the processing of the application, and at any time while the concern is a certified HUBZone, SDVOSB/VOSB, or WOSB/EDWOSB. The 8(a) Program has its own annual certification process but rest assured that you will be shown the exit of the 8(a) Program if you ignore that as well.
- Be sure to update any address change with the SBA. If the firm here had done so, it may have received all communications from the SBA, which could have also reduced the possibility of decertification.
And, just in case you were wondering, if an SDVOSB is decertified, it can apply for re-certification “no sooner than 90 calendar days from the date of final agency decision … if it believes that is has overcome all of the reasons for denial or decertification and is currently eligible.” 13 C.F.R. § 128.305.
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