A SDVOSB’s Employee Stock Ownership Plan caused the company to be ineligible under the SBA’s SDVOSB rules because the service-disabled veteran did not own 51% of the ESOP class of stock.
A recent SBA Office of Hearings and Appeals decision should serve as a cautionary tale to any SDVOSB contemplating establishing an ESOP–or any other ownership structure consisting of multiple classes of stock.
A service-disabled veteran-owned small business was awarded its attorneys’ fees for successfully appealing the SBA’s decision that the company was not an eligible SDVOSB.
In what seems to be the first decision of its kind, the SBA Office of Hearings and Appeals held that the prevailing party in a SDVOSB appeal may be entitled to recover attorneys’ fees under the Equal Access to Justice Act.
Last week, the U.S. House of Representatives passed the 2015 defense authorization bill. The House-passed version of the 2015 National Defense Authorization Act would transfer VetBiz SDVOSB verification from the VA to the SBA.
If the Senate agrees, and the President signs the bill into law, the process of transferring SDVOSB verification from the VA CVE to the SBA could begin later this year.
A would-be SDVOSB’s relationships with a company controlled by the SDVOSB’s minority owner undermined the service-disabled veteran’s control–and cost the SDVOSB an Air Force contract.
In a recent decision, the SBA Office of Hearings and Appeals ruled that a SDVOSB did not adequately control his company where the company (and the veteran) appeared to be unduly dependent on an outside firm.
Perhaps no single aspect of federal government contracting causes more confusion than the fact that the government currently runs two SDVOSB programs: one under the VA’s rules and the other under the SBA’s.
The current system can lead to inconsistent results, such as a company being a “SDVOSB” for purposes of VA contracts, but not those issued by other agencies (or vice versa). As SmallGovCon readers know, I am on record as stating that the “two SDVOSB programs” approach is idiotic and ought to be scrapped. (Okay, maybe I wasn’t on record with the word “idiotic” before. I guess I am now.)
But while I cross my fingers and hope that Congress will simplify things, SDVOSBs are stuck with the current system. And, as a recent SBA Office of Hearings and Appeals case demonstrates, SDVOSBs should be aware of the important differences between the two SDVOSB programs.
The U.S. Court of Federal Claims has ordered the VA to pay attorneys’ fees to Miles Construction, LLC stemming from the Court’s February decision that the company’s “right of first refusal” provision did not render it ineligible for the VA’s SDVOSB program.
In ordering the VA to pay attorneys’ fees, the Court held that the VA’s defense of its broad interpretation of “unconditional ownership” was not substantially justified–but also suggested that the Court might not reach the same result under the SBA’s SDVOSB rules.
A service-disabled veteran, who owned 80% of this business and served as its highest officer, “controlled” the company within the meaning of the SBA’s SDVOSB regulations, according to a recent decision of the SBA Office of Hearings and Appeals.
SBA OHA’s commonsense decision overturned an earlier SBA determination that the veteran’s majority ownership and officer position did not amount to “control.”