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.
