On January 24, 2018, a final General Services Acquisition Regulation (GSAR) rule was issued that incorporates order-level materials (OLMs) into the Multiple Award Schedule (MAS) program. On selected schedules, agencies can now acquire not just the products and services they’ve come to rely on from GSA, but also the associated items required to make use of them at the order level.
From GSA: “OLMs are supplies and/or services acquired in direct support of an individual task or delivery order placed against a Schedule contract or BPA. OLM pricing is not established at the Schedule contract or BPA level, but at the order level. Since OLMs are identified and acquired at the order level, the ordering contracting officer (OCO) is responsible for making a fair and reasonable price determination for all OLMs.
OLMs are procured under a special ordering procedure that simplifies the process for acquiring supplies and services necessary to support individual task or delivery orders placed against a Schedule contract or BPA. Using this new procedure, ancillary supplies and services not known at the time of the Schedule award may be included and priced at the order level.”
So what are the new benefits of this policy, and why should you care?
- OLMs increase the flexibility of contracts using the various GSA Schedules, especially the ones that focus on services, to provide a total solution to meet the actual customer requirements.
- OLMs reduce customer agency procurement/administrative costs and makes leveraging GSA Schedules that much easier – of course GSA likes this because they get the order through the MAS, along with any associated fees (the downside is that the company gets OLM “revenue,” which generally is just a pass-through fee, not a profit margin, and therefore is using up revenue).
- Contracting officers are happy because it reduces contract duplication by eliminating the need to set up new commercial IDIQs and/or open market procurements for ODCs (“Other Direct Costs”).
- OLMs potentially eliminate the need for Government Furnished Equipment (GFE), and anything that reduces the burden on the customer/contracting officer to track things is HIGHLY desirable.
- Contracting officers like the fact that MAS terms and conditions apply to OLMs, which ensures customer buys are compliant with FAR and other guidelines.
As a contractor, how do you include OLMs under a Schedule order?
The special ordering procedures are contained in General Services Administration Acquisition Regulation (GSAR) clause 552.538-82 Special Ordering Procedures for the Acquisition of Order-Level Materials, which may be incorporated into contracts under OLM-authorized Schedules. This clause, along with a dedicated Special Item Number (SIN) for Order-Level Materials, allows ordering activities to include OLMs in Schedule orders.
It is important to remember:
- Prices for OLMs are not established in the Schedule contract or BPA.
- OLMs are established and acquired at the order level, and the ordering activity contracting officer is responsible for making the determination that prices for all OLMs are fair and reasonable.
- OLM procedures may be used to purchase OLM products or services to support delivery orders (products) or task orders (services) under authorized GSA Schedules.
- OLMs may be added to any order-type, i.e. Firm Fixed-Price, Time & Materials (T&M), or Labor Hour. However, the OLM CLIN (contract line item number) must be T&M, but it can be the only T&M CLIN on the order. i.e., OLMs may be added to a Firm Fixed-Price order, but the OLM CLIN itself must be T&M.
Current Authorized OLM Schedules
- 00CORP – Professional Services Schedule
- 03FAC – Facilities Maintenance and Management
- 56 – Buildings And Building Materials / Industrial Services and Supplies
- 70 – Information Technology
- 71 – Furniture
- 84 – Security, Fire, & Law Enforcement
- 738X – Human Capital Management and Administrative Support Services
A GSA OLM Ordering Guide is coming soon. In the meantime, check out these resources:
- Training: Understanding Order-Level Materials (OLMs) [PDF – 248 KB]
- Training: Order-Level Materials – Vendor Webinar [PDF – 3 MB]
- Order-Level Materials SIN Description [PDF – 50 KB]
- Summary of Support Item Types for GSA Schedules Program Orders [PDF – 102 KB]
- Order-Level Materials FAQs #1 (April 25, 2018) [PDF – 120 KB]
- Order-Level Materials FAQs # 2 (August 8, 2018) [PDF – 112 KB]
- Download OLM training for federal agency customers and industry partners
This bill, which applies only to the Department of Defense, will amend section 3903 of title 31, United States Code, to establish accelerated payments applicable to contracts with certain small business concerns. This bill would require the government to establish a goal of paying all small business contractors within 15 days of receiving a proper invoice. The bill also establishes a similar goal for government contractors that have small business sub-contractors.
This bill is a win-win-win for small businesses, taxpayers, and the community.
For small businesses: “Small business contractors rely on a consistent and reliable flow of income in order to keep their operations running smoothly. The Accelerated Payments for Small Businesses Act will help ensure these businesses receive their payments in a timely and accountable manner. This consistency will enable businesses to focus on improving their services and expanding production.” – Representative Steve Knight (R-CA)
“The Accelerated Payments for Small Businesses Act [will] ensure that all transactions among small business contractors are treated with the respect and equity they deserve. Making this commitment will yield a tremendous return further incorporating small businesses including those that are women-owned, minority-owned, veteran-owned, and HUBZone contractors.” – Representative Adriano Espaillat (D-NY)
For the taxpayers: “[This bill means that] small business prime contractors and prime contractors that subcontract with small businesses can continue to do business and not pass on any unnecessary costs to the taxpayer” – House Small Business Committee Chairman Steve Chabot (R-OH)
For the community: “For small companies, payment delays can mean cash flow problems, constraining their expansion and slowing job growth. By accelerating payments to small companies, this legislation will help small contractors meet payroll, reinvest in their operations and create good paying jobs along the way.” – House Small Business Committee Ranking Member Nydia Velázquez (D-NY)
It also affects a company having the resources in time to pay subcontractors and even our 1099 consultants and SMEs, increasingly used in this rapidly innovating economy. We’ve talked in other venues about financing options, but anything which reduces the cost of credit and makes payments better, also saves money for the contractor.
This is a guest post by Cy Alba of PilieroMazza PLLC.
With proposals costing hundreds of thousands of dollars and many IDIQs having 50 or more awardees, it can easily happen that some contractors who win a spot on a contract are unable to capitalize on it and simply stop trying to capture task orders. Whether it was because the initial win was based on sheer luck or perhaps because of a tragic, unforeseeable change in circumstances, making it impossible to bid or even keep the company doors open, a contractor may find itself with a shiny new license to hunt, but without the proper tools to successfully compete for and win the actual task orders.
After failing to win any work for usually a year or more, contractors in situations like this may just be looking to recoup the bid and proposal costs or salvage the win. Often, they look to sell their zombie contracts to a more viable candidate. In the past, this was not too difficult, but in recent years, even months, it has become a harder and harder “sell.”
First, it has always been true, yet not fully understood by many, that the sale of a federal contract is prohibited. However, this has always been more of a technical or legal truth than reality. Now, however, agencies have started to question more and more transactions during the novation process, especially in cases where IDIQ contracts without ongoing task orders are sold to other contractors. At some agencies, but particularly GSA, contracting officers are questioning whether a transaction truly includes “all assets needed to perform the contract,” as required by FAR Part 42, or whether transactions are an improper sale of a federal contract.
Many contractors come back with something along the lines of “this is a services contract, there are no assets, just people.” However there are two issues with that statement: (1) it inaccurately admits the improper sale of a federal contract and (2) it ignores the fact that many tangible and intangible assets exist, even when a “naked” IDIQ contract is transferred. Despite what some inside and outside of the government may believe, assets such as proposals, bid strategies, and marketing plans all have real value. Indeed, the proposals themselves for these contracts may have cost hundreds of thousands of dollars to prepare.
Given these facts and recent experience, we recommend that contractors carefully review all possible tangible and intangible assets that are part of a transaction, value each item, and then include them on at least the buyer’s post-transaction balance sheets, if not the seller’s pre-transaction balance sheets when possible, to show the agency the factual reality that there are valuable assets changing hands.
Lastly, we have also seen agencies use purchase terms against contractors. Particularly, terms whereby the seller retains workshare have been used as evidence that (1) the buyer is not capable of performing the work and that (2) not all assets needed to perform the work were transferred. While the existence of a workshare guarantee is evidence of neither, it has not stopped contracting officers from making such conclusions. Thus, given these new interpretations coming out of various agencies, we recommend carefully crafting such provisions going forward and giving full explanations in the novation package cover letter.
While the government enjoys a broad level of discretion when reviewing novations so they are never guaranteed, focusing on these and similar issues can help resolve the government’s concerns as to improper sales of federal contracts. In the past year or so, we have seen a major paradigm shift amongst a number of federal agencies. Thus, if you are buying or selling “naked” IDIQ vehicles, be prepared for a fight on the novation front, regardless of how well crafted the purchase agreement—some agencies will use the smallest excuse to reject a novation as not being in the best interests of the government when, by any reasonable account, it absolutely is.
This post originally appeared on the PilieroMazza blog at https://www.pilieromazza.com/avoiding-flat-tires-when-acquiring-idiq-contract-vehicles and was reprinted with permission.
The SBIC program is an investment program with a Small Business Administration (SBA) guarantee that increases access to capital for high-growth, start-up businesses.
This provision in the NDAA, H.R. 2364, amends the Small Business Investment Act of 1958 to increase from 5% to 15% of its capital and surplus, the amount a national bank, a member bank of the Federal Reserve System, a nonmember insured bank (to the extent permitted under applicable state law), or a federal savings association may invest in one or more small business investment companies (SBICs), or in any entity established to invest solely in SBICs. The increase is subject to the approval of the appropriate federal banking agency.
The bill will assist small business in obtaining venture capital and private equity (source). Anything we can do to stimulate the flow of more investment from normal capital flows, like banks and chartered SBICs, is definitely a good thing for small businesses. And as you know, that’s the engine of growth that we follow in this blog.
While this may seem a small thing, these SBICs are major players in the growth and financing of small businesses across the country and in “main street” America. And the good news is this is one of those drafted regulations that can be adjusted fairly easily and produce substantial results. Across the board, we’ve actually tripled the funding available for these SBIC entities.
H.R. 2763 – The Small Business Innovation Research and Small Business Technology Transfer Improvements ActsPosted: December 5, 2018
One of the things we’re seeing a lot of in the Federal sector right now is an emphasis on innovation and on finding new ways to do things. So, it’s not surprising that the 2018 NDAA addressed this in part.
This provision in the NDAA amends the Small Business Act to require:
• the Small Business Administration’s (SBA’s) annual report on the Small Business Information and Research (SBIR) and Small Business Technology Transfer (STTR) programs to be submitted by December 31, and
• each Federal agency required to establish an SBIR program to submit its annual report on such program by March 30.
H.R. 2763, the Small Business Innovation Research and Small Business Technology Transfer Improvements Act requires (current law authorizes) the Department of Defense (DOD), for any contract under the Commercial Readiness Program with a value of at least $100 million, to:
• establish goals for the transition of Phase III technologies in subcontracting plans, and
• require a prime contractor to report the number and dollar amount of contacts entered into for Phase III SBIR or STTR projects.
The NDAA also authorizes all agencies participating in the SBIR program, during FY2018-FY2022, to provide SBIR Phase II awards for a project to a small business concern without regard to whether such concern was provided a Phase I award for such project.
This is important because the funding now can go to organizations, especially small businesses. This is a new proviso and gives agencies far more flexibility in awarding innovative technologies even a direct Phase II award.
The provision changes the temporary pilot program that a covered agency may establish for the allocation of SBIR and STTR program funds for awards for technology development, testing, evaluation, and commercialization assistance for SBIR and STTR phase II technologies, or to support the progress of research, research and development, and commercialization conducted under such programs to phase III, to a permanent Civilian Agency Commercialization Readiness Program.
It also extends until September 30, 2022, the deadline until which the SBA shall allow each agency required to conduct an SBIR program to use not more than 3% of program funds for administrative, oversight, and contract processing costs.
This provision also calls for greater transparency from the Small Business Administration (SBA) on the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.
The voters didn’t quite create a blue wave, although the numbers moving from Republican to Democrat have definitely made the House a very blue-ish territory. Of course the Democrats aren’t any more monolithic than the Republicans were, and pressure from the Democratic left wing, especially leading up to a presidential election, may create interesting reading in the Washington, D.C. bubble.
But what will it mean for us as Federal contractors?
One possibility is that we’ll keep on avoiding the “continuing resolutions” – the last two years we’ve had full budgets and this year we got that in before the new FY started, for the first time in a decade. I’m hoping that we can continue down this path, and give the Federal budget makers and the folks who divide it up and authorize spending, the time to get it done.
I don’t know about your company, but mine has been responding to RFIs and RFPs in the 1st FY quarter like the floodgates have opened, and that’s a good thing, because awards will come in time to actually enjoy the spending for most of a full year.
Another possibility is that we’ll return to those continuing resolutions – this will be bad, but not catastrophic, as solid budgets are in place from the past two years that can be used to move forward.
The thing I fear the most is that there will be paralysis, as the two sides don’t really put running the country first, and will allow the budgets to be taken hostage by the political process. This would be a bad thing, and I certainly hope we’re not headed back there.
Happy Thanksgiving, happy holidays, and we’ll see what the New Year brings.
This is a guest post by Judy Bradt of Summit Insight.
Judy Bradt has surveyed federal contractors about their top business challenges since 2012. Her company, Summit Insight, provides business training, sales plans and mentorship to grow your federal business.
Early results from her 2019 survey show that the number one challenge to landing millions in federal wins is “getting in front of federal buyers.”
Is that true for you?
Tackle that one problem, and 2019 could be your best federal year ever.
Judy says, “There are five steps you can start taking today to get in front of your federal buyer and build the trust to become their first choice next time they are ready to buy.” Here are those steps:
1. Hot wash
A year-end hot wash is where you look at the process, patterns and outcomes of the year, along with lessons learned. What worked, what didn’t, and what’s promising? This gives you a foundation for what’s next.
Sample areas to check are:
• Data: Plan versus actual
• Marketing: Keep/change/drop
• Intelligence: Where wins came from
• Strategy execution improvement
• Win rate and profit
• How can buyers get to us?
Look back at who is winning the contracts you’ve lost. Doing a competitive analysis lets you create opportunities.
• Research players and layers
• See who they love
• Know how they behave
• Start with who you know
• Solve their problem
• Start small. Be persistent
3. Lower risk
Low risk attracts buyers when you can leverage your past performance. Do this by collecting:
• Business process data: systematic capture
• Summary table
• Key case studies
• Examples for tailored capability statements
4. Make it easy
Make it easy for them, with micro-purchase options, simplified acquisition, and by using their favorite vehicles.
Make is easy for you by using these tips for writing winning proposals:
• Better bid/no bid criteria
• A streamlined proposal process
• Mitigate risk
• Write like a pro
• Prevent fatal errors
5. Launch FY19 NOW
• Clean up your collateral like your core capabilities list and certifications
• Refresh your profiles with the Federal government, including GSAAdvantage, System for Award Management, and Dynamic Small Business Search; on state government vendor sites; small and minority certifications (federal, state, local, and commercial supplier diversity); prime contractor portals; social media (e.g. LinkedIn, Twitter, Facebook); and industry association member profiles
• Purge your pipeline (let go the stuff that you’ve realized are long shots you never had a hope of winning)
• Update and organize your contact lists
• Give gratitude by writing thank you letters to everyone who helped or spent time with you in 2018
For more guidance from Judy on how to make FY19 your best year ever, download her complimentary Federal Q1 Launch Checklist, FYE 2018 Edition at http://growfedbiz.com/Q1 (email subscription required).
Judy Bradt, Summit Insight’s founder, brings you 30 years’ experience working with more than 7,000 clients across diverse industries who credit her expertise in achieving wins worth in total over $300 million dollars. In addition to offering free monthly public webinars on federal contract success and high-value public and private training classes, Judy is the Vice President for Education and Training for the National Veterans Small Business Coalition.
This is a guest post by Matthew Schoonover of SmallGovCon.
As Matthew Schoonover reported in a previous post on this site and at SmallGovCon, the SBA has amended its eligibility rules for SDVOSBs. These rules provide important clarity into SDVOSB eligibility going forward.
He explained how the new rule addresses an ongoing conflict between different standards of control that meant a company could be an SDVOSB under the VA’s regulations, but not the SBA’s.
- The new rule also makes important changes to the ownership requirements for an SDVOSB. Among them:
For partnerships, the new rule says that the service-disabled veteran must unconditionally own at least 51% of the aggregate voting interest (rather than at least 51% of every class of partnership interest);
- The new rule clarifies that the SDVOSB’s service-disabled veteran owners must receive at least 51% of the company’s annual distribution of profits and that the ability to share in profits must be commensurate with the veteran’s ownership interest;
- The new rule doesn’t count stock held by ESOPs in the 51% ownership requirement—but only for a “publicly owned business,” which doesn’t apply to the vast majority of SDVOSBs;
- Community property laws will be disregarded in determining compliance with the 51% ownership requirement, a welcome change for veterans living in certain states, who have long been forced to ask their spouses to sign legal documents disclaiming their community property rights;
- The new rule says that that veterans must be able to overcome any supermajority voting requirements and requires verified SDVOSBs to inform the VA of any new supermajority voting requirements adopted after verification;
- The veteran holding the company’s highest officer position generally must be the highest compensated under the new rule—a requirement that’s existed in the VA regulations for many years, but not the SBA’s old regulations; and
- The new rule essentially adopts the VA’s surviving spouse ownership regulation, which allows the veteran’s spouse to take ownership of the SDVOSB upon the veteran’s passing (if certain requirements are met).
If some of these provisions sound familiar, it’s because many of the “new” SBA rules are similar to, or in some cases essentially identical to, existing VA regulations. For some veterans, who may have hoped that using the SBA’s regulations would eliminate some of the more cumbersome VA requirements, the SBA’s adoption of these requirements may be disappointing.
But all-in-all, these new rules bring important clarity to the SBA’s SDVOSB ownership and control requirements. While we can certainly quibble with some of the substantive requirements, it’s important for everyone to understand exactly what a program like the SDVOSB program allows (and doesn’t allow). The SBA’s SDVOSB regulations have long been rather vague—so vague, in fact, that in some cases the SBA’s own Administrative Judges have resorted to using the 8(a) Program regulations to evaluate certain aspects of SDVOSB compliance. Whether one agrees or disagrees with a particular requirement, it’s better to know that it exists, instead of being caught off guard during a protest, when a contract is at stake.
One thing I didn’t directly see addressed, however, is the SBA’s prohibition on rights of first refusal for the veteran’s ownership interest. It’s possible that the “extraordinary action” of allowing a new equity stakeholder would cover a standard right of first refusal, but it would be best to see how the SBA interprets this rule before jumping to conclusions. As Steve noted in his post earlier this week, SDVOSBs and VOSBs should continue to be leery against including any right of first refusal in their ownership documents.
One final note: as Steve wrote about back in April, SDVOSBs and VOSBs have new protest and appeal rights, which also kick in October 1. Among those rights, if a company’s SDVOSB verification application is denied, or its verified status is cancelled, the company can appeal to the SBA’s Office of Hearings and Appeals.
We’ll keep you posted on the implementation and interpretation of these new regulations. In the interim, please give us a call if you have questions about SDVOSB eligibility.
This article was originally published at http://smallgovcon.com/service-disabled-veteran-owned-small-businesses/new-sba-rule/ and was reprinted with permission.
This is a guest post by Matthew Schoonover of SmallGovCon.
In an earlier post, Steve updated SmallGovCon readers on a very important SDVOSB eligibility change: beginning October 1, the VA will begin using the SBA’s eligibility rules to verify SDVOSBs and VOSBs.
The SBA has now followed suit—in a final rule published September 28, 2018, the SBA has amended its eligibility rules for SDVOSBs. These rules provide important clarity into SDVOSB eligibility going forward.
Let’s take a look at some of the most important changes.
The first change that jumped out at me was the SBA’s new definition of “extraordinary circumstances.” By way of background, SmallGovCon readers know that the VA and the SBA have long had differing standards of control—in some cases, the SBA required that a service-disabled veteran exercise absolute control over the SDVOSB, while the VA recognized that non-veteran owners should have a say over some matters in the business. This conflict meant that a company could be an SDVOSB under the VA’s regulations, but not the SBA’s.
The new SBA rules try to bring consistency to this mess. It should come as no surprise, however, that the new rule specifies that service-disabled veterans must control the company’s “daily business operations,” and defines that term as including, “but not limited to, the marketing, production, sales and administrative functions of the firm, as well as the supervision of the executive team, and the implementation of policies.” But the SBA has included a new provision (at 13 C.F.R. § 125.13(m)) that allows non-service disabled veterans to have a say over certain “extraordinary actions.” The new rules set out five—and only five—of these extraordinary actions:
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.
Other than in the case of these five actions, the SBA’s rules still require the service-disabled veteran to control the company.
Exercising this control, the new SBA rules require that the service-disabled veteran work at the company during normal business hours. Importantly, however, the SBA has not included a full-time devotion requirement, meaning that, in theory, the veteran can have outside engagements, so long as the veteran is able to control the company’s management and daily business operations. But if the veteran is not able to work at the company during its normal business hours, there is a rebuttable presumption that the veteran is not actually in control.
The SBA would also prefer it if the veteran worked close to the company’s headquarters or jobsites. If the veteran “is not located within a reasonable commute” to the company, there’s a rebuttable presumption that he or she does not control the firm.
Under the new rule, various examples are given of circumstances that may cause the SBA or VA to find that the veteran doesn’t satisfy the unconditional control requirement, including cases where the SDVOSB has business relationships “with non-service-disabled veteran individuals or entities which cause such dependence that the applicant or concern cannot exercise independent business judgment without great economic risk.”
This is a guest post by Steven Koprince of SmallGovCon.
The VA will begin using the SBA’s eligibility rules to verify SDVOSBs and VOSBs beginning October 1, 2018.
In a final rule published today in the Federal Register, the VA confirms that the SBA’s eligibility requirements will apply beginning next week–but in my eyes, one very important question remains unanswered.
As regular SmallGovCon readers know, the differences between the government’s two SDVOSB programs have caused major headaches for veterans. Because the two sets of regulations have different eligibility requirements, a company may be an eligible SDVOSB under one set of rules, but not the other.
In 2016, Congress addressed the problem. As part of the 2017 NDAA, Congress directed the VA to verify SDVOSBs and VOSBs using the SBA’s regulatory definitions regarding small business status, ownership, and control. Congress told the SBA and VA to work together to develop joint regulations governing SDVOSB and VOSB eligibility. The VA published a proposed rule earlier this year to eliminate its separate SDVOSB and VOSB eligibility requirements.
Now the VA has issued a final rule, set to take effect in just one week on October 1. The final rule broadly reiterates that the VA is eliminating its separate SDVOSB and VOSB eligibility requirements because “regulations relating to and clarifying ownership and control are no longer the responsibility of VA.” Instead, in verifying SDVOSBs and VOSBs, the VA will use the SBA’s eligibility rules set forth in 13 C.F.R. part 125.
The VA’s final rule answers a few questions from the public about the change. Among the VA’s answers:
- Despite a common misconception, this final rule does not move the verification process from the VA to the SBA. The final rule states, “[a]lthough the authority to issue regulations setting forth the ownership and control criteria for SDVOSBs and VOSBs now rests with the Administrator of the SBA, the [VA] is still charged with verifying that each applicant complies with those regulatory provisions prior to granting verified status and including the applicant in the VA list of verified firms.”
- The “VA and SBA will treat joint ventures the same way,” applying the SBA’s regulatory criteria. This is important because the VA currently does not treat joint ventures the same way as the SBA. Although the VA largely defers to the SBA’s joint venture rules, the VA has been requiring SDVOSB joint ventures to demonstrate that the SDVOSB managing venturer will receive at least 51% of the joint venture’s profits. This conflicts with the SBA’s current regulation, which allows the SDVOSB managing venturer to receive as little as 40% of the joint venture’s profits, depending on how the joint venturers split work.
- Persons “found guilty of, or found to be involved in criminally related matters or debarment proceedings” will be immediately removed from the VetBiz database. Additionally, owing outstanding taxes and unresolved debts to “governmental entities outside of the Federal government” may be disqualifying, but won’t lead to an automatic cancellation.
As you may recall, the SBA proposed to revise its own SDVOSB regulations earlier this year. These proposed rules, when finalized, would apply to both the VA and SBA. The VA’s final rule indicates that the SBA’s final rule also will take effect on October 1. “VA and the SBA believe a single date on which all of the changes go into effect is the most effective path for implementation,” the VA writes. As I sit here today on September 24, I haven’t seen the SBA’s final rule yet, but I assume it will be published any moment. We’ll blog about it on SmallGovCon when that happens.
By consolidating the eligibility requirements for SDVOSBs and VOSBs, the SBA and VA will eliminate a lot of confusion. In that sense, these changes are good news. But I’m concerned about one important item that wasn’t raised in the VA’s response–that is, what happens to currently verified companies who no longer meet the eligibility requirements? In other words, what happens to companies that were verified under the VA’s “old” rules, but won’t qualify as SDVOSBs under the SBA’s “new” rules?
Remember, many companies were verified as SDVOSBs and VOSBs based on the VA’s eligibility requirements, which (until October 1) aren’t identical to the SBA’s. Perhaps most notably, the VA has long permitted companies to use reasonable “right of first refusal” provisions in their corporate governing documents. The SBA, on the other hand, has deemed such provisions impermissible–a position that a federal judge called “draconian and perverse,” but nonetheless within the SBA’s broad discretion.
As I read the SBA’s proposed rules, anyway, the SBA hasn’t changed its position on this issue. And while it sounds wonky, it’s actually very important: right of first refusal provisions are commonplace in operating agreements, bylaws, and shareholders’ agreements prepared by good corporate counsel. It’s a virtual certainty that hundreds, if not thousands, of verified SDVOSBs and VOSBs have such provisions in their governing documents.
Are these companies now vulnerable to protest? Will the VA CVE propose them all for cancellation? Are they somehow grandfathered in? (I highly doubt that, but I suppose you never know). It’s a very important question and I hope one that the SBA and VA will answer soon.
My colleagues and I will keep you posted.
Update (September 28, 2018): The SBA has published its SDVOSB final rule, available here.
This post originally appeared at http://smallgovcon.com/service-disabled-veteran-owned-small-businesses/va-will-use-sba-sdvosb-eligibility-rules-starting-october-1-2018/ and was reprinted with permission.