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.
