As we’ve discussed, the SBA will soon take the reins over from VA to run the certification process for Veteran-Owned Small Businesses (VOSBs) and Service-Disabled, Veteran-Owned Small Businesses (SDVOSBs). Self-certification for SDVOSBs will go away on December 31, 2023, so be sure to get your SDVOSB ownership and control documents up to snuff in order to stay compliant with the SDVOSB rules. One of those rules concerns unconditional ownership by the veteran. A recent federal court case sheds some additional light on that topic, as explored in this post.Continue reading
Ownership of a Service-Disabled Veteran-Owned Business has to be unconditional. As the owner of an SDVOSB recently found out, unconditional ownership generally means there can be no restrictions on the service-disabled veteran owner’s ability to sell the ownership interest. Let’s explore the details.Continue reading
Fraud is an ever pressing concern in federal contracts, and the federal government goes to great lengths to minimize the risks to introduce fraud into the procurement system.
Unfortunately, a recent GAO report highlighted how complex ownership structures can be leveraged to obscure fraudulent contracting activities. Worse still, complex ownership structures are most frequently leveraged to perpetrate small business set-aside fraud.Continue reading
The VA Center for Verification and Evaluation unreasonably decertified an SDVOSB based on the results of an SBA SDVOSB decision.
According to the U.S. Court of Federal Claims, it was improper for the VA to remove the SDVOSB from the VA’s database without evaluating whether the SBA’s determination was consistent with the VA’s separate SDVOSB requirements.
The Court of Federal Claims recently issued an opinion that defines “unconditional ownership” of an SDVOSB in a more relaxed manner than the SBA, creating a split of authority on the issue.
The Court, rejecting SBA precedent, held that certain restrictions on ownership of an SDVOSB by a service-disabled veteran are acceptable under the SBA’s unconditional ownership regulations. In particular, the SDVOSB company can retain a right of first refusal that would allow it to purchase the shares of the veteran upon death, incompetency, or insolvency, and that right does not result in a violation of the unconditional ownership requirement.
With the Court and the SBA’s administrative judges staking out different positions, what should SDVOSBs do?
Provisions in a company’s Shareholders Agreement, requiring the service-disabled veteran to sell his shares back to the company in the event of the veteran’s death or incapacity, were contrary to the SBA’s SDVOSB regulations.
According to a recent SBA Office of Hearings and Appeals decision, these provisions prevented the veteran from having unconditional ownership over the company, because he could not dispose of his shares as he chose. In reaching its conclusion, SBA OHA wrote that Court of Federal Claims decisions allowing such provisions under the VA’s SDVOSB program didn’t apply to SBA–meaning that SDVOSBs verified by the VA might be ineligible for non-VA SDVOSB contracts.
What a mess.
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.