It is quite common for businesses in the private sector to share control and duties among many executives or individuals. However, as many who have looked into SBA socioeconomic certifications have found out, to gain certification in a set-aside program, basically all control needs to reside with one individual. Recently, the SBA’s Office of Hearings and Appeals (OHA) reviewed a SDVOSB recertification denial, and provided a reminder to contractors interested in the SDVOSB and VOSB program that the veteran must be the sole individual in control.
First, before jumping into the case, it is good to brush up on some of the requirements for being a VOSB or SDVSOB. We have published a blog about the basics of SDVOSB and VOSB eligibility, and the top five things to remember about SDVOSBs and VOSBs. These blog posts, and many others on SmallGovCon, discuss the multitude of requirements to qualify for entry into the SDVOSB and VOSB program (called “VetCert” by SBA). Of importance to this case are the regulations on control in an SDVOSB or VOSB. Specifically important are the requirements that the qualifying veteran be the highest ranking officer, the highest compensated officer, and control day-to-day operations of the VOSB or SDVOSB.
Under SBA rules, “one or more qualifying veterans controls both the long-term decision-making and the day-to-day operations of the Applicant or Participant.” Additionally, the qualifying veteran “must hold the highest officer position in the concern (usually President or Chief Executive Officer)” and receive the highest compensation in the business unless the business can show the lower compensation was taken for the benefit of the company.
In the recent OHA case, Display Devices, Inc., SBA No. VSBC-439-A (Aug. 11, 2025), a business applied to VetCert for recertification as a SDVOSB. In its application for recertification, the business stated that the qualifying veteran was not the highest paid individual in the business, but the lower compensation was done for the betterment of the company. The company also provided shareholder meeting minutes, and descriptions of operations that seemed to indicate in some places that, while the qualifying veteran is CEO, a non-veteran had at least some day-to-day control. The SBA denied the SDVOSB recertification, stating for its reasons: (1) the qualifying veteran was not the highest compensated; (2) the qualifying veteran was not the highest ranking officer; and (3) the qualifying veteran did not have day to day control of the business. The company then appealed this decision to OHA.
OHA determined that the SBA was incorrect in finding that not being the highest compensated justified SDVOSB recertification denial. However, OHA agreed that the qualifying veteran did not hold the highest officer position and did not exercise complete day-to-day control, therefore upholding the SDVOSB recertification denial.
For the compensation issue, OHA held that the regulation does allow for qualifying veterans to take a lesser salary or compensation for the betterment of the company. OHA explained “it is not at all uncommon for small business owners to take reduced or deferred compensation in order to benefit the business” and the company explained in their application that the lesser compensation was done in order to benefit the business. OHA held that enough was done to justify the lower compensation, and the SBA was erred on this one point. This is an interesting outcome for SDVOSB applicants to be aware of. However, OHA upheld the other two reasons cited by the SBA for SDVOSB recertification denial.
OHA noted that business documentation provided in the application, such as meeting minutes, seemed to be contradictory. Some documents identified the qualifying veteran as President, and some listed a non-veteran as President. Also, the application stated that the veteran did not hold the highest officer position. Due to the inconsistent information presented in the application, and the business admitting the qualifying veteran does not hold the highest officer position, OHA agreed with the SBA that the recertification should be denied due to the qualifying veteran not being the highest ranking officer. Additionally, OHA explained that the application “states clearly” that a non-veteran oversees day-to-day operations of the business. The company had noted: “‘[The veteran’s son] now oversees day to day operations’ and that the Qualifying Veteran . . . has 100% ownership in another entity, D.D.I. Properties, Inc., although he does not have any outside employment.” Therefore OHA also agreed with the SBA that the qualifying veteran did not hold the exclusive control necessary to qualify as a SDVOSB.
A positive takeaway for contractors in this decision is that OHA does seem to provide a clear standard to meet the exception to the highest compensation requirement for VOSB and SDVOSB eligibility. If an applicant is simply upfront about compensation being lower and explains logically that it was a decision done by the qualifying veteran to help the business, then it is likely allowable. That provides some guidance for companies in which the veteran may defer compensation to grow the business.
However, this case also serves as a clear warning to keep your business documentation and your application very clear, have an established officer structure, and to ensure that no control ever slips to someone other than the qualifying veteran. The inconsistent business documentation, and fact that a non-veteran had day-to-day control, was enough to doom this application. This can be easily avoided if your company is structured properly to put all day-to-day and long term decision making in the qualifying veteran’s hands, and the officer positions and roles are clearly delineated. If you are looking at applying for the VOSB or SDVOSB program, many of these pitfalls can be avoided by reaching out to a federal government contracting attorney, such as ourselves, for a review and update of your company’s documentation, structure, and control.
Questions about this post? Email us. Need legal assistance? Call us at 785-200-8919.
Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook.