On November 6, 2015, the Department of Veterans Affairs (VA) issued a proposed rule to amend regulations for the VA’s verification program for veteran owned small businesses (VOSBs) and service-disabled veteran owned small businesses (SDVOSBs). (Reference: 80 Fed. Reg. 68795.) The VA proposed amendments to prevent fraud and provide an easier process for VOSBs and SDVOSBs to become verified.
The proposed rule will still require an eligible concern be at least 51 percent “unconditionally” owned by a veteran. However, VA understands that requiring “unconditional” ownership may be difficult so they have proposed to allow “commercially reasonable” conditions on a veteran’s ownership interest and prohibit only conditions that create a risk of fraud, waste, and abuse.
As for the control requirements, the proposed rule will still require a veteran to control the strategic policy, long-term decision-making, and management of daily business operations for the concern. However, the proposed rule adds an exception so that the veteran does not need to have control over “extraordinary business decisions.”
These changes in the ownership and control requirements show a more pragmatic approach and reflect a better understanding of how small businesses are run, yet still provides the VA with the ability to prevent fraud and abuse in the program.
Unfortunately, this amendment to the VA’s rules conflict with SBA’s strict ownership and control requirements for VOSB and SDVOSB programs. In requiring 51% unconditional ownership, SBA does not recognize an exception for “commercially reasonable conditions”. And the veteran must have control over all company decisions, which could make an entity ineligible for the SBA’s programs even if it only gives minority owners control over fundamental business decisions.
Be aware that if you set up your company to conform to VA regulations, you may find out that you are no longer eligible for contracts with non-VA agencies under the SBA’s VOSB and SDVOSB programs because of the SBA’s strict interpretation of the unconditional ownership and control requirements.
Less significant changes to the VA’s ownership and control requirements include:
Making joint ventures eligible for the VA’s verification program as long as the VOSB or SDVOSB is properly verified and entitled to at least 51 percent of the joint venture’s net profits, and the joint venture agreement complies with the SBA’s requirements for joint venture agreements.
Concerns must be registered in SAM and obtain and keep current all applicable permits, licenses, and state charters required to perform contracts.
In addition to being ineligible if they have unpaid federal obligations, the proposed rule would include unpaid financial obligations to state, district, or territorial governments.
The “good character” requirement would expand to require good character of all individuals having ownership or control. Concerns owned or controlled by a person who is formally accused of a crime involving business integrity would be ineligible for verification.
So the best advice is to be aware of this proposed change and respond accordingly. If you only submit proposals to VA, then you would be subject to their new guidance. However, if you submit proposals to other agencies, you need to ensure you comply with those specific SB regulations.