Georgia Tech Procurement Assistance Center

New decisions clarify small business minority shareholder protections

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One of the easiest small business affiliation rules to apply is that a person that owns “50 percent or more of a concern’s voting stock … controls or has the power to control the concern.” (13 C.F.R. § 121.103(c)(1))

It is far more difficult, however, for minority owners that own less than 50 percent of a concern’s voting stock to determine what, if any, controls they can have over a small government contractor without jeopardizing their small business status.

The Small Business Administration (SBA) has long held that minority owners may have negative controls to protect their investment without creating affiliation as long as the negative controls do not create control over day-to-day business operations.

In recent cases, SBA’s Office of Hearings and Appeals (OHA) has further clarified what specific arrangements may comply with that rule.

Generally, a minority owner will be found to control a concern if it can veto or block important business actions.

Keep reading this article at: http://www.mondaq.com/article.asp?articleid=759238

SBA is deleting ‘direct’ ownership requirement from HUBZone program

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HUBZone companies owned by U.S. citizens will no longer be required to demonstrate that the ownership is “direct.”

The SBA’s HUBZone program rules have long required that a HUBZone company owned by U.S. citizens be at least 51% directly owned by those citizens – as opposed to allowing the qualifying citizens to own those interests through legal vehicles like holding companies.  But the SBA has had second thoughts, and effective May 25, 2018, the direct ownership requirement will be eliminated.

In a direct final rule issued on March 26, the SBA writes that “[d]irect ownership is not statutorily mandated” by the portion of the Small Business Act governing the HUBZone program.  The SBA has concluded that “the purposes of the HUBZone program – capital infusion in underutilized geographic areas and employment of individuals living in those areas – may be achieved whether ownership by U.S. citizens is direct or indirect.”

Keep reading this article at: http://smallgovcon.com/hubzone-program/hubzone-program-sba-will-delete-direct-ownership-requirement/

COFC rejects SBA decision that future conditions on stock ownership destroy ‘unconditional ownership’

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Veteran-owned small businesses have long grappled with seemingly benign drafting inconsistencies between Small Business Administration (SBA) and Department of Veterans Affairs (VA) regulations that can leave a business qualified as a Service-Disabled Veteran-Owned Small Business (SDVOSB) by VA standards, but not at the SBA (or vice versa).

One such puzzler is the requirement for unconditional ownership by a service-disabled veteran, a requirement that is common to both SBA and the VA, but for which the VA provides a substantially more detailed definition.

  • Compare: 13 C.F.R. § 125.12 (“A concern must be at least 51% unconditionally and directly owned by one or more service-disabled veterans.”)
  • With: 38 C.F.R. § 74.3(b) (adding that “[o]wnership must not be subject to conditions precedent, conditions subsequent, executory agreements, voting trusts, restrictions on assignments of voting rights, or other arrangements causing or potentially causing ownership benefits to go to another (other than after death or incapacity)”).

This additional detail has created some conflicting results, which is not helped by divergent interpretations of unconditional at SBA and the Court of Federal Claims, all of which has left many a veteran business owner (and more than a few legal practitioners) scratching their heads.

Keep reading this article at: http://www.mondaq.com/article.asp?articleid=655422

Veteran-owned small businesses: 5 things you should know

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You’ve served your country with pride.  Now, as a government contractor, it’s only fair that you get your piece of the pie.

Here are five things you should know about the government’s contracting programs for veteran-owned small businesses and service-disabled veteran-owned small businesses:

  1. What is a veteran-owned small business?
  2. Who “controls” the business?
  3. What’s the benefit?
  4. Can a business challenge my status?
  5. How can your business apply?

Keep reading this article at: http://smallgovcon.com/five-things/sdvosbs-and-vosbs/

Federal court interprets SDVOSB “unconditional ownership” less strictly than SBA

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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?

In Veterans Contracting Group, Inc. v. United States, No. 17-1015C, (Fed. Cl. Aug. 22, 2017), the Court examined the same facts that the SBA Office of Hearings and Appeals did in a recent decision addressed in the SmallGovCon blog post of September 19, 2017.  And, examining the very same facts, the Court reached the opposite conclusion.

Keep reading this article at: http://smallgovcon.com/service-disabled-veteran-owned-small-businesses/federal-court-interprets-sdvosb-unconditional-ownership-less-strictly-than-sba/

WOSB program: Company ineligible because husband managed business

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A self-certified woman-owned small business was ineligible for a WOSB set-aside contract because the woman owner’s husband held the company’s highest officer position and appeared to manage its day-to-day operations.

A recent SBA Office of Hearings and Appeals decision highlights the importance of ensuring that a woman be responsible for managing the day-to-day business of a WOSB–and that the woman’s role be reflected both in the corporate paperwork and in practice.

OHA’s decision in Yard Masters, Inc., SBA No. WOSB-109 (2017) involved an Army solicitation for grounds maintenance services.  The solicitation was issued as a WOSB set-aside under NAICS code 561730 (Landscaping Services), with a corresponding $7 million size standard.

Keep reading this article at: http://smallgovcon.com/women-owned-small-business-program/wosb-program-company-ineligible-because-husband-managed-business/

Defense contractor to pay $16 million to settle false claims allegations over small business contracts

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Virginia-based contractor ADS Inc. and its subsidiaries have agreed to pay $16 million to settle allegations that they violated the False Claims Act by knowingly conspiring with and causing purported small businesses to submit false claims for payment in connection with fraudulently obtained small business contracts, the Department of Justice announced last week.

The settlement also resolves allegations that ADS engaged in improper bid rigging relating to certain of the fraudulently obtained contracts. The settlement with ADS ranks as one of the largest recoveries involving alleged fraud in connection with small business contracting eligibility.

In order to qualify as a small business, companies must meet defined eligibility criteria, including requirements concerning size, ownership, and operational control.  The settlement with ADS resolves allegations that ADS, together with several purported small businesses that it controlled, fraudulently induced the government to award certain small business set-aside contracts by misrepresenting eligibility requirements. The purported small businesses affiliated with ADS include Mythics Inc., London Bridge Trading Co. Ltd., as well as MJL Enterprises LLC, which falsely claimed to be an eligible service-disabled veteran-owned company, and SEK Solutions LLC and Karda Systems LLC, both of which falsely claimed to qualify as socially or economically disadvantaged businesses under the Small Business Administration’s 8(a) Business Development Program. ADS and its affiliates allegedly concealed the companies’ affiliations with ADS and knowingly made misrepresentations concerning the size of the businesses and their eligibility as service-disabled or 8(a) qualified businesses. Finally, the settlement resolves allegations that ADS engaged in illegal bid rigging schemes that inflated or distorted prices charged to the government under certain contracts.

The settlement with ADS resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and share in a portion of the government’s recovery. The civil lawsuit was filed in federal district court in the District of Columbia by Ameliorate Partners LLP. As part of today’s resolution, the whistleblower will receive approximately $2.9 million.

The settlement is the result of a coordinated effort among the Civil Division’s Commercial Litigation Branch, the U.S. Attorneys’ Offices for the District of Columbia and the Eastern District of Virginia, the Small Business Administration’s Office of Inspector General, and the General Services Administration’s Office of Inspector General.  The claims resolved by the settlement are allegations only, and there has been no determination of liability.

Source: https://www.justice.gov/opa/pr/defense-contractor-ads-inc-agrees-pay-16-million-settle-false-claims-act-allegations

Here’s a summary of the changes in government contracting provisions of the NDAA

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Steve Koprince is the author of the book entitled "The Small-Business Guide to Government Contracts."
Steve Koprince is the author of the book entitled “The Small-Business Guide to Government Contracts.”

The 2017 National Defense Authorization Act (NDAA), signed into law on Dec. 23, 2016, contains at least 16 changes to federal procurement policy, many directly affecting the interests of small businesses.

Ever since the NDAA was finalized, attorney Steve Koprince and his team at Koprince Law LLC have been analyzing and summarizing each of the changes.  Here’s s list of their blog posts, each one hyperlinked to the article:

 

For more information, visit: http://smallgovcon.com 

 

North Carolina couple sentenced for fraudulently claiming veteran and 8(a) small business status

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Justice Dept. seal - CopyRicky A. Lanier and his wife Katrina R. Lanier, both of LaGrange, N.C., have been sentenced to serve federal prison terms of 48 months and 30 months, respectively, for conspiracy to commit wire fraud, wire fraud, and major fraud against the United States. The couple were found guilty of these offenses on Dec. 17, 2015, following a 13-day jury trial in U.S. District Court. Their sentence was announced on Oct. 3, 2016.

According to evidence presented at trial, the Laniers conspired from November 2005 to April 2013 to defraud the government through a scheme to fraudulently obtain federal contracts intended to be awarded to businesses lawfully participating in the Department of Veterans Affairs’ (VA) Service-Disabled Veteran-Owned Small Business (SDVOSB) program and the Small Business Administration’s (SBA) 8(a) Business Development program.  Specifically, they falsely represented that JMR Investments was eligible as an 8(a) business and that Kylee Construction was eligible as an SDVOSB and an 8(a) business.

Ricky Lanier, who had previously owned and operated an 8(a) business receiving government contracts, became ineligible to participate in the 8(a) program after that business graduated from that program in 2008.  Lanier used a friend and service-disabled veteran as the purported owner of Kylee Construction, representing that the friend was involved in the daily management of the business, even while the friend was working for a government contractor in Afghanistan.  The Laniers used a business, JMR Investments owned by Ricky Lanier’s college roommate, as a front to obtain construction contracts from the National Park Service and other federal agencies under the 8(a) program, misrepresenting the friend’s involvement in the management and operation of the business.  The scheme also involved subcontracting out all or almost all of the work on the contracts in violation of program requirements.

Ricky Lanier also defrauded the National Park Service in connection with a contract to replace a wastewater treatment facility at the Tremont Institute in the Great Smoky Mountains National Park, falsely representing subcontractor costs by over $400,000, resulting in the award of a $1.1 million contract for work on the project that was actually performed by a subcontractor for only $550,000.  Lanier also fraudulently obtained a $1.3 million construction contract at the James H. Quillen VA Medical Center which had been set aside for SDVOSBs.

As a result of the false representations, Kylee Construction was awarded over $5 million in government contracts and JMR Investments was awarded over $9 million in government contracts. The Laniers received almost $2 million in financial benefit from the scheme, using accounts of the shell companies for payment of personal expenses.

Law enforcement agencies participating in the joint investigation which led to indictment and subsequent conviction of Ricky and Katrina Lanier included the VA-Office of Inspector General (OIG), SBA- OIG; and Department of the Interior, OIG, with assistance from the U.S. Secret Service.  Former Assistant U.S. Attorney Neil Smith and Assistant U.S. Attorney David L. Gunn represented the United States.

Source: https://www.justice.gov/usao-edtn/pr/north-carolina-couple-sentenced-government-contract-fraud

Most franchise agreements prevent veteran-owned businesses from becoming verified by VA

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CVE logoThe U.S. Department of Veterans Affairs (VA) has issued a fact sheet on the impact of business franchise agreements on the verification process for veteran-owned small businesses.  “Most franchise agreements seek to maintain control of the company in a manner which prevents the Veteran from making decisions concerning day-to-day operations and the overall direction of the company,” notes the VA, thus disqualifying the franchise owner from qualification under the VA’s verification standards.

“Franchises are not automatically excluded from applying for verification,” according to the VA fact sheet, but “generally, franchises’ business documents contain provisions which do not allow the Veteran or service-disabled Veteran owner complete authority in managing and controlling critical elements of the firm.”

In order to be verified as a veteran-owned small business (VOSB) by the VA’s Center for Verification and Evaluation (CVE), a business must be both owned and controlled by one or more veterans.  Control means both the day-to-day management and long-term decision making authority for the VOSB, according to 38 CFR § 74.4(a).

While the CVE does not have an official definition for what a franchise is, CVE’s policy is to evaluate franchises no differently than any other company seeking verification.  However, the VA fact sheet is straightforward as to the probable outcome of its review of a franchise: “To the extent the franchise agreement does not impose restrictions on the Veteran owner’s ability to manage and control the franchise, the franchisee may be found eligible. However, that is not usually the case.”

To review the entire text of the VA’s fact sheet on franchises, use this link: http://www.va.gov/osdbu/docs/factsheetFranchisesVeteransFirstContractingProgram.pdf

 

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