Georgia Tech Procurement Assistance Center

A reminder regarding the importance of SDVOSB control rules

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The recent decision in CVE Appeal of Valor Construction, Inc, SBA No CVE-121-A (June 3, 2019) provides a useful reminder to contractors regarding the difference between unconditional ownership and unconditional control, and the importance of assessing both when analyzing service-disabled veteran owned small business (“SDVOSB”) eligibility.  Specifically, the decision in Valor – which was issued by the Small Business Administration’s (“SBA”) Office of Hearings and Appeals (“OHA”) – demonstrates that an individual’s majority ownership of a SDVOSB, alone, does not vest that individual with unconditional control over the SDVOSB.  The Valor decision further reflects how the revised control regulations may cause eligibility problems for contractors.  Avoiding these pitfalls requires some background knowledge regarding the dual SDVOSB programs and the revision of the applicable regulations, a thorough understanding of the revised regulations themselves, and an awareness of the most common eligibility problems that contractors can face under these regulations.

Continue reading at:  Obermayer

Federal Circuit dismisses SDVOSB appeal as moot

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On Nov. 20, 2018, the U.S. Court of Appeals for the Federal Circuit seemingly ended the Veterans Contracting Group line of cases.

As a refresher, in those cases, the contractor challenged the U.S. Small Business Administration’s (SBA) determination that it was an ineligible Service Disabled Veteran Owned Small Business (SDVOSB) and the U.S. Department of Veterans Affairs’ (VA) reciprocal removal from its SDVOSB database. The Federal Circuit dismissed the appeal as moot, noting that under the new SDVOSB regulations effective Oct. 1, 2018, the two sets of regulations are now uniform. While non-precedential in nature, the Federal Circuit’s decision also raises questions of the consequential nature of the newly promulgated regulations for decisions currently pending before courts and administrative forums.

By way of background, the Veterans Contracting Group line of cases highlight some of the many conflicts that existed between the SBA and VA rules prior to the release of new rules by each respective agency in October 2018. The decisions are also demonstrative of the consequential results for contractors due to the previous split between the regulations. In these lines of cases, the contractor received several conflicting decisions, often over facially slight differences between the regulations on ownership and “unconditional ownership” requirements. The Federal Circuit’s decision in Veterans Contracting Group v. United States et. al, No. 2018-1410 (Fed. Cir. Nov. 20, 2018) will likely become the final voice in the matter, and seemingly puts an end to appeals and differing opinions over these regulations—at least for the contractor.

Keep reading this article at: http://www.mondaq.com/article.asp?articleid=758386

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

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/

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