SDVOSBLAW: Government Contract Law Firm - SDVOSB Law, Claims, Disputes, Protests

You may have now heard, as of October 1, 2018, the VA has adopted the SBA’s regulations on SDVOSB and VOSB eligibility under 13 C.F.R. § 125.  This change avoids conflicts between the VA and SBA programs for SDVOSBs and VOSBs.  This is a welcomed change since most companies are involved in both programs.  What does this mean to you?

You may want to revisit your operating agreement or bylaws, as the case may be.  The VA will no longer find that lack of control exists where a service-disabled veteran does not have the unilateral power and authority to make decisions in “extraordinary circumstances.”  Under 13 CFR § 125.11, the term “extraordinary circumstances” is defined as:

1.  Adding a new equity stakeholder;

2.  Dissolution of the company;

3.  Sale of the company;

4.  The merger of the company; and

5.  Company declaring bankruptcy.

In other words, a company’s bylaws or operating agreement can be amended so that the service disabled veteran does not have the unilateral right to do any of the five (5) acts listed above.  The logic is that these decisions are considered “extraordinary” and it therefore makes reasonable business sense that all shareholders or members (or a super majority) have a vote in such a decision.  This will also encourage outside investors to invest in an SDVOSB or VOSB if the service disabled veteran cannot do any of the five (5) acts without their say.

This regulation does not mean that the service disabled veteran cannot have unilateral control over extraordinary circumstances.  That is still acceptable.  Rather, the new regulation provides another option.

It is also worth noting that under 13 C.F.R. § 125.13(l), there is now a “rebuttable presumption” that the service disabled veteran does not control his company if he or she does not live near company headquarters or job site:

There is rebuttable presumption that a service-disabled veteran does not control the firm if that individual is not located within a reasonable commute to firm’s headquarters and/or job-sites locations, regardless of the firm’s industry. The service disabled veteran’s ability to answer emails, communicate by telephone, or to communicate at a distance by other technological means, while delegating the responsibility of managing the concern to others is not by itself a reasonable rebuttal.

The above regulation is designed to avoid a situation where the service disabled veteran does not regularly visit company headquarters, but claims he or she controls the company remotely by emails and other technological means. I suppose that can be true — after all in today’s day and age many people telecommute to work from home.  It will be interesting to see how far CVE applies this rebuttable presumption.  For now, the best bet is to ensure that the service disabled veteran resides near company’s headquarters or an active and major job site.

This blog is for educational purposes only and does not constitute legal advice.  Using this blog does not create an attorney-client relationship between you and the author or Manfredonia Law Offices, LLC.  The information provided on this blog is not guaranteed to be complete, correct or up-to-date.

Posted in CVE Policy

The VA has upgraded their VIP website recently. Unfortunately, migration from the old to new system has not been seamless. The new system is currently down indefinitely for “emergency maintenance.” Hopefully, the techies are working hard to get this fixed asap. Meanwhile, the VA has promised to give time extensions to applicants who have pending document requests. Fairness dictates that the VA should also give time extensions to companies whose verifications have expired, or are about to expire. The VA should do so immediately to alleviate this stressful situation on our veterans.

Posted in CVE Policy

As of May 21, 2018, the VA’s Center for Verification and Evaluation (CVE) will suspend incoming applications for verification for “approximately 30 days” as it transitions to a new online VIP platform.  CVE will continue to process previously submitted applications during the suspension.  For more information, follow this link: CVE Notice of Suspension

Posted in CVE Policy

On January 29, 2018, the SBA issued proposed changes to its SDVOSB regulations. Proposed SBA SDVOSB Regulations (1/29/18)  This comes as the VA is about to dump its own SDVOSB regulations and follow the SBA’s. The proposed regulations provide greater guidance on some of the issues that have haunted the contracting community, resulting in loss of verification and protests.

For example, the proposed SBA SDVOSB regulations prohibit super-majority voting requirements, except in extraordinary circumstances. Specifically, under a company’s bylaws or operating agreement, a super majority vote can be required in the following extraordinary situations:

• Add a new equity shareholder
• Dissolve the company
• Sell the company
• Merge the company
• Declare the company bankrupt

Allowing all members to approve the above actions will provide a more favorable environment for outside investors to take partial ownership of an SDVOSB.

The proposed SBA SDVOSB regulations also define the term “unconditional ownership” to allow for conditions that follow normal commercial practices.  This will allow, for example, the rights of first refusal to purchase a members’s or shareholder’s ownership interest if he or she decides to sell.

There are many other interesting provisions in the SBA’s proposed SDVOSB regulation changes.  We will keep you posted when they become final.

Posted in CVE Policy

On January 10, 2018, the VA issued proposed changes to its SDVOSB and VOSB regulations. This was done (finally) in accordance with the National Defense Authorization Act of 2017 (“NDAA”), which recognized that differences between the VA and SBA regulations has caused confusion. The NDAA’s fix is to require the VA to rescind its conflicting regulations and adopt the SBA’s regulations instead.  The VA’s proposed regulatory changes do just that.

For example, the VA will no longer have its own definition of “unconditional ownership.”  This means that all VOSBs and SDVOSBs will be subject to the SBA’s regulations on unconditional ownership.  The SBA Office of Hearing and Appeals has construed “unconditional ownership” under the so called Wexford standard as follows:

In the context of 13 C.F.R. § 125.9 [now moved to § 125.12], unconditional necessarily means there are no conditions or limitations upon an individual’s present or immediate right to exercise full control and ownership of the concern.  Nor can there be any impediment to the exercise of the full range of ownership rights. Thus, a service-disabled veteran: (1) Must immediately and fully own the company (or stock) without having to wait for future events; (2) Must be able to convey or transfer interest in his ownership interest or stock whenever and to whomever they choose; and (3) Upon departure, resignation, retirement, or death, still own their stock and do with it as they choose. In sum, service-disabled veterans must immediately have an absolute right to do anything they want with their ownership interest or stock, whenever they want.

The Wexford Group International, Inc., SBA No. SDV-105, at 5 (2006)

In  Veterans Contracting Group, Inc. v. United States and Williams Building Company, Inc. No. 17-1188C (December 20, 2017),  the Court of Federal Claims found that the a right of first refusal provision in a shareholder agreement rendered an SDVOSB ineligible under the Wexford standard.  Our firm successfully represented the protestor in this case.  We will wait and see whether the SBA changes their regulations to be more flexible, including the use of rights of first refusal.  If they do not, then SDVOSBs and VOSBs must revisit their corporate documents to ensure they do not inadvertently become ineligible.

The VA regulations will also give the SBA Office of Hearings and Appeals jurisdiction to review CVE denials.  This is a welcomed change. This means you are entitled to have a smart and objective Judge review whether CVE has done the right thing. No more fruitless requests for reconsideration to CVE.

The changes to the VA regulations are not final.  There is a 60 day public comment period after which the VA may enact the regulations as written or revise them futher.  Stay tuned to our website for updates.

Posted in CVE Policy

On August 31, 2017, the Office of Hearings and Appeals (“OHA”) ruled that Veterans Contracting Group, Inc. does not meet the SBA SDVOSB regulations’ unconditional ownership requirement. Veterans Contracting Group, SBA No. Vet 265  The contractor’s shareholder agreement included a provision, which provides that in event of a shareholder’s death or incapacity, he must sell their shares to the corporation at certain price. We represented the protestor in this case and argued that this provision does not meet the unconditional ownership requirement under the Wexford standard, which provides:

In the context of 13 C.F.R. § 125.9 [now moved to § 125.12], unconditional necessarily means there are no conditions or limitations upon an individual’s present or immediate right to exercise full control and ownership of the concern.  Nor can there be any impediment to the exercise of the full range of ownership rights. Thus, a service-disabled veteran: (1) Must immediately and fully own the company (or stock) without having to wait for future events; (2) Must be able to convey or transfer interest in his ownership interest or stock whenever and to whomever they choose; and (3) Upon departure, resignation, retirement, or death, still own their stock and do with it as they choose. In sum, service-disabled veterans must immediately have an absolute right to do anything they want with their ownership interest or stock, whenever they want. Wexford Group International, SBA No. SDV-105 (2006)

Veterans Contracting Group argued that the Wexford standard is dead, citing the Miles and AmBuild cases where the Court of Federal Claims held that the VA SDVOSB regulations permit a right of first refusal since it follows “normal commercial practices.”  OHA disagreed, stating that the SBA’s and VA’s definitions on unconditional ownership are different:

The DVA regulation contains a specific exception for ownership restrictions which are found to be included in “normal commercial practices”. The SBA regulation contains no such provision, and the Wexford standard does not allow for it. Appellant would have OHA write a “normal commercial practices” exception into SBA’s regulation, but OHA does not have the authority to rewrite regulations. The Wexford standard has been in place and consistently followed for eleven years, and SBA has taken no step to disturb it or to revise the regulation to allow for “normal commercial practices” of the type permitted by the DVA regulation. SBA has determined that it will instead keep the stringent definition of unconditional ownership in the regulation, in order to ensure that the benefits of ownership accrue to the SDV. The D/GC did not err in applying the established Wexford standard for determining whether Mr. Montano’s ownership of Appellant is unconditional.

This dispute is not over.  This case is now before the Court of Federal Claims who will decide whether OHA is right.  A hearing is scheduled for November 21, 2017.  We will keep you posted. Meanwhile, if you are competing for non-VA SDVOSB set aside contracts, it would be best to review your corporate docs to ensure compliance with the Wexford standard.

Update: As of October 1, 2018, the VA and SBA regulations on a service disabled veteran’s unconditional control are the same.

Posted in CVE Policy

On March 13, 2017, CVE issued a Memorandum increasing the period of verification from 2 years to 3 years. This is a welcome change for SDVOSB companies. It will reduce administrative and legal fees spent on obtaining re-verification.

This does not mean you should relax and forget about compliance for another year or two. CVE can visit you at any time. In fact, by increasing reverification from 2 to 3 years, CVE will have more resources to conduct random visits.

Continuous compliance is key. The service disabled veteran should always be in control and maintain at least 51% ownership. Keep good records and report any changes in ownership to CVE.

CVE Memorandum – 3 Year Verification

Posted in CVE Policy