VA Withdraws Proposed SDVOSB Regulatory Overhaul

The VA has officially withdrawn its November 2015 proposal to overhaul its SDVOSB and VOSB regulations.

The VA’s action isn’t surprising, given that the 2017 National Defense Authorization Act requires the VA to work with the SBA to prepare a consolidated set of SDVOSB regulations, which will then apply to both VA and non-VA procurements.  What’s interesting, though, is that the VA doesn’t say that it’s withdrawing the 2015 proposal because of the 2017 NDAA, but rather because of numerous objections to the proposal–including objections from the SBA.

By way of quick background, the VA’s 2015 proposal would have significantly overhauled its SDVOSB and VOSB regulations with the goal of finding “an appropriate balance between preventing fraud in the Veterans First Contracting Program and providing a process that would make it easier for more VOSBs to become verified.”  The VA accepted comments on the proposal until January 2016.

As it turns out, those comments were largely negative.  According to the notice of withdrawal published in the September 1, 2017 Federal Register, of the 203 comments received, “134 of these comments were adverse to the proposed rule and VA’s verification program in general.”

Several of the adverse comments came from the SBA.  The SBA wrote, among other things, that the VA did “not provide any indication of the number of small businesses that may be impacted by the proposed change,” and that the proposed rule “failed to provide statutory or other legal authority following each cited substantive provision.”

Not all of the SBA’s objections concerned the rulemaking process.  SBA also objected to the VA’s proposal to remove an SDVOSB or VOSB from the database if the veteran in question was formally accused of a crime involving business integrity.  SBA (correctly, I think), said that this proposal “would seem to deny an applicant due process of law” because an accusation is not the same as a finding of guilt.

Other commentators also objected to various portions of the rule, including the VA’s proposal to make a firm wait 12 months, instead of six, to reapply after an application is denied.

After summarizing the reaction to its proposal, VA simply states: “[b]ecause of the adverse comments received during the comment period, VA is withdrawing the proposed rule.”

What comes next for the SDVOSB and VOSB regulations?  Well, the 2017 NDAA directed the SBA and VA to issue a joint proposal within 180 days of the final enactment of the statute.  Former President Obama signed the bill into law on December 23, 2016, so the joint proposal is overdue–although I understand that the two agencies are working on it.