SBA Says Goodbye to Reasonable Commute Rule for SDVOSBs

SBA, without much commentary, recently removed the so-called reasonable commute requirement for service-disabled veterans (SDV) who owned or managed service-disabled veteran-owned small businesses (SDVOSB). This rule used to require that veterans live near the principal office or job site, but it sometimes caused issues for SDVOSBs because of how restrictive it could be. Thankfully, SBA has removed this requirement. Since SBA brought little attention to this change, we want to highlight it in this post and say farewell to this SDVOSB requirement.

The old rules governing SDVOSBs included a rebuttable presumption that a service-disabled veteran SDVOSB does not control the firm based on location. It said:

(l) Close proximity. There is rebuttable presumption that a veteran or, in the case of an SDVO SBC, service-disabled veteran does not control the firm if that individual is not located within a reasonable commute to firm’s headquarters and/or job-sites locations, regardless of the firm’s industry. The veteran or, in the case of an SDVO SBC, service-disabled veteran’s ability to answer emails, communicate by telephone, or to communicate at a distance by other technological means, while delegating the responsibility of managing the concern to others is not by itself a reasonable rebuttal.

13 C.F.R. § 125.13(l)(rule no longer in effect).

The VA used to interpret this rule to mean that the SDV had to live within 150 miles of the headquarters or job site. Crosstown Courier Service Inc., SBA No. CVE-239 (July 26, 2022). But it could be enforced pretty strictly. For instance, when an SDV lived over 1200 miles from a job site, SBA upheld a ruling that the SDVOSB was in eligible as the headquarters was “located more than 1,200 miles from the job locations in North Dakota and Minnesota.” FHITO Logistics, LLC, SBA No. CVE-202 (Sept. 2, 2021).

Plus, the regulation used to say that electronic communication is not sufficient to demonstrate control where an SDV did not live near its job sites or main office. Most would agree that the pandemic taught us that people can delegate tasks by use of electronic communication. In the same FHITO case, OHA said that, the SDV’s “ability to adequately supervise the work is questionable, and he offers no real rebuttal to this problem, especially when his ability to communicate electronically with the job site is excluded as a rebuttal by the regulation.”

The proposed rule issued by SBA in 2022 did include the reasonable commute rule. However, in the final rule issued in fall of 2022, the reasonable commute and close proximity language has been eliminated. SBA did not include any federal register commentary expressing exactly why the rule was removed. However, SBA did state that it “revised the section (redesignated as § 128.203(h)) to be more consistent with the 8(a) BD program regulations governing control.” We can surmise, though, that SBA felt the rule was overly restrictive, especially when compared to other programs like the 8(a) Program, which never contained such a reasonable commute rule.

Luckily, SBA has now agreed that the rule is no longer needed and has eliminated the rule entirely. Therefore, SDVOSBs can apparently worry a lot less about the location of their residence as compared to their principal office and job sites. Thanks to the SBA for making this common sense update.

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