In a recent SBA decision, SBA’s judges had the opportunity to review three different simultaneous challenges to whether a service-disabled veteran controlled a SDVOSB. Because there were three different challenges reviewed at once, SBA took a deep dive into the SDVOSB certification standards around the requirement of control of a SDVOSB. With such a deep dive, SBA provided some explanations of SDVOSB control concepts that could be helpful to contactors looking to certify or re-certify as an SDVOSB. In these cases, a SDVSOB owner had a second job, and job experience in a different field, but SBA found the owner had the necessary control over the SDVOSB to remain certified.
As there were three different protests combined into one, it is good to lay some initial groundwork to keep things straight. In Caduceus Med. Logistics LLC, SBA No. CVE-239 (2022), a SDVOSB was challenged related to three different contracts they received for Medical Courier Services. The SDVOSB was 81% owned by a service-disabled veteran and 19% by a non-veteran. So, the major focus of the protests were on whether the service-disabled veteran “fully controlled” the SDVOSB. The service-disabled veteran served as the CEO and the managing member of the company, while the non-veteran owner served as the President of the SDVSOB.
The three protests (and their supplemental filings) presented basically the same arguments and allegations related to control, which were focused on the experience of the service-disabled veteran owner, the full-time devotion of the service-disabled veteran owner to the SDVOSB, and the service-disabled veteran owner’s oversight of the SDVOSB and its work.
First, the SBA looked at allegations surrounding the experience of the service-disabled veteran owner.
- Allegation: The service-disabled veteran owner doesn’t have any experience in the medical courier services industry so they lack the necessary managerial experience. Consequently, the SDVOSB and service-disabled veteran owner are dependent on the SDVOSB President’s past personal experience in the medical courier services field. Therefore, the President is the one truly exercising control of the company.
- SBA Analysis: In addition to military experience as an engineer, the service-disabled veteran owner had extensive experience in automation, brewing, and was head of brewing/production for a brewing company. At that brewing company the service disabled veteran was in charge of: “purchasing decisions, marketing strategy and generating of business contacts, management of personnel and sales, and management of operations for successful sustainment of business.” The SBA found that while none of this is so-called “direct experience” in the field of medical courier services, this experience does meet the standard set forth in the regulations, that the service disabled veteran owner should have managerial experience not subject level expertise. (as a note, the SDVOSB regulations were recently moved, and previous citation numbers have consequently been changed)
Next the SBA reviewed allegations surrounding the service-disabled veteran owner having a second job and therefore not showing full-time devotion to the SDVOSB.
- Allegation: The service-disabled veteran has another full time job at nights and on weekends at brewery, so they cannot commit the necessary time to run the SDVOSB.
- SBA Analysis: While the service-disabled veteran owner did have a second job at a brewing company, it did not interfere with or reduce the amount of time he spent with the SDVOSB. The service-disabled veteran owner showed they were fully committed to working for the SDVOSB full-time during normal business hours, made themselves available when needed outside of normal business hours, and the other job had flexible hours (nights and weekends). Crucially, the SDVOSB provided documentation to support that the service-disabled veteran owner was dedicated full-time to the SDVSOB. These documents included “meeting logs, a flight ticket from Georgia to Washington, signed contracts, e-mails, text messages, and 6-month call logs between [service-disabled veteran owner] and [SDVOSB President], purporting to show that [service-disabled veteran owner] fully controls the daily operations of [SDVOSB].”
Finally, the SBA reviewed allegations around the service-disabled veteran owner’s oversight of the SDVOSB and its work.
- Allegation: The contracts were for medical courier services in Washington state, while the headquarters of the SDVOSB are in Georgia (the service-disabled veteran owner’s home). Therefore, the service-disabled owner can not exercise the necessary oversight and control “virtually” over the performance of the contract from states away, and the owner is not within a reasonable commute of the work.
- SBA Analysis: The headquarters of the SDVOSB is the service-disabled veteran’s home, so the owners commute to the work is not at all lengthy (likely a couple of steps and a cup of coffee), and the service-disabled veteran owner exercises full oversight/control of individuals performing contracts across the country through supervisory structures set up in the company’s operating agreement to report to the service-disabled veteran owner for authority and decision making. The standard cited by the SBA for this analysis is “over delegation of authority,” such as abdicating day-today decision-making authority. As was shown in the documentation submitted by the SDVOSB related to full-time devotion of the service-disabled veteran owner, the service-disabled veteran owner was willing to travel as needed out to work sites in Washington, hold meetings, and be in frequent contact with work sites. So, there was no “over-delegation” of authority by the service-disabled veteran owner.
These findings may feel like common sense to some, but they represent some great benchmarks for current and future SDVOSB contractors to review.
It is quite common for SDVOSB certifications to fail due to the service-disabled veteran owner having another job, not having a clear operating agreement designating the service-disabled owner as the ultimate control and majority owner, or the service-disabled veteran owner is not located near enough to the company’s headquarters/work. This case demonstrates that an SDVOSB can be successfully overseen and controlled by a service-disabled owner who has a second job, so long as that second job is not more important than the SDVOSB and occurs outside of the SDVOSB’s normal business hours. Additionally, as industries across the nation have shifted to being run from homes, it may be possible for service-disabled veteran owners to exercise the needed control over their SDVOSBs, if the headquarters are located at their home (or rather close to it), they have robust oversight structures in place, and they truly are exercising the day-to-day and long term decision making authority that is expected of them. Of course, the bedrock of all of this, was a strongly established reporting, decision making, and authority structure built into the SDVOSB, established through its operating documents, which ensured control (and ownership) was undoubtedly with the service-disabled veteran owner.
In the end, if you are wanting to be an SDVOSB, or are re-certifying as an SDVOSB soon, what matters is that you have all your “ducks in a row” so-to-speak from the ground up, from operating documents to the day-to-day work done by the service-disabled veteran owner. If you are worried about whether your SDVOSB stacks up to the regulatory standards and has its “ducks in a row”, or you would like to learn more about becoming certified as an SDVOSB, please let us know, and check out our back-to-basics article on SDVOSB Certification.
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