Another Big Win For Vets: SDVOSBs Trump AbilityOne At VA, Court Rules

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This is a guest post by Steven Koprince of SmallGovCon.

The VA cannot buy products or services using the AbilityOne List without first applying the “rule of two” and determining whether qualified SDVOSBs and VOSBs are available to bid.

Today’s decision [originally printed on May 30, 2017] of the U.S. Court of Federal Claims in PDS Consultants, Inc. v. United States, No. 16-1063C (2017) resolves–in favor of veteran-owned businesses–an important question that has been lingering since Kingdomware was decided nearly one year ago. The Court’s decision in PDS Consultants makes clear that at VA, SDVOSBs and VOSBs trump AbilityOne.

The Court’s decision involved an apparent conflict between two statutes: the Javits-Wagner-O’Day Act, or JWOD, and the Veterans Benefits, Health Care, and Information Technology Act of 2006, or VBA.

As SmallGovCon readers know, the VBA states that (with very limited exceptions), the VA must procure goods and services from SDVOSBs and VOSBs when the Contracting Officer has a reasonable expectation of receiving offers from two or more qualified veteran-owned companies at fair market prices. Last year, the Supreme Court unanimously confirmed, in Kingdomware, that the statutory rule of two broadly applies.

The JWOD predates the VBA. It provides that government agencies, including the VA, must purpose certain products and services from designated non-profits that employ blind and otherwise severely disabled people. The products and services subject to the JWOD’s requirements appear on a list known as the “AbilityOne List.” An entity called the “AbilityOne Commission” is responsible for placing goods and services on the AbilityOne list.

But which preference takes priority at VA? In other words, when a product or service is on the AbilityOne list, does the rule of two still apply? That’s where PDS Consultants, Inc. enters the picture.

The AbilityOne Commission added certain eyewear products and services for four Veterans Integrated Service Networks to the AbilityOne List. VISNs 2 and 7 had been added to the AbilityOne List before 2010. VISNs 2 and 8 were added to the AbilityOne list more recently.

PDS filed a bid protest at the Court, arguing that it was improper for the VA to obtain eyewear in all four VISNs without first applying the rule of two. The VA initially defended the protest by arguing that AbilityOne was a “mandatory source,” and that when items were on the AbilityOne List, the VA could (and should) buy them from AbilityOne non-profits instead of SDVOSBs and VOSBs.

But in February 2017, just two days before oral argument was to be held at the Court, the VA switched its position. The VA now stated that it would apply the rule of two before procuring an item from the AbilityOne list “if the item was added to the List on or after January 7, 2010,” the date the VA issued its initial regulations implementing the VBA. For items added to the AbilityOne List beforehand, however, no rule of two analysis would be performed.

(As an aside–the VA seems to be making a habit of switching its positions in these major cases).

The parties agreed that the VA’s new position mooted PDS’s challenges to VISNs 6 and 8, which would now be subject to the rule of two. But what about VISNs 2 and 7? PDS pushed forward, challenging the VA’s position that it could issue new contracts in those VISNs without performing a rule of two analysis. PDS argued, in effect, that nothing in the VBA allowed products added to the AbilityOne List before 2010 to somehow be “grandfathered” around the rule of two.

Judge Nancy Firestone agreed with PDS:

The court finds that the VBA requires the VA 19 to perform the Rule of Two analysis for all new procurements for eyewear, whether or not the product or service appears on the AbilityOne List, because the preference for veterans is the VA’s first priority. If the Rule of Two analysis does not demonstrate that there are two qualified veteran-owned small businesses willing to perform the contract, the VA is then required to use the AbilityOne List as a mandatory source.

Judge Firestone pointed out that under the VBA, “the VA must perform a Rule of Two inquiry that favors veteran-owned small businesses and service-disabled veteran-owned small businesses ‘in all contracting before using competitive procedures’ and limit competition to veteran-owned small businesses when the Rule of Two is satisfied.”

Citing Kingdomware, Judge Firestone wrote that “like the [GSA Schedule], the VBA also does not contain an exception for obtaining goods and services under the AbilityOne program.” Judge Firestone concluded:

[T]he VA has a legal obligation to perform a Rule of Two analysis under the VBA when it seeks to procure eyewear in 2017 for VISNs 2 and 7 that have not gone through such analysis – even though the items were placed on the AbilityOne List before enactment of the VBA. The VA’s position that items added to the List prior to 2010 are forever excepted from the VBA’s requirements is contrary to the VBA statute no matter how many contracts are issued or renewed.

Judge Firestone granted PDS’s motion for judgment and ordered the VA not to enter into any new contracts for eyewear in VISNs 2 and 7 from the AbilityOne List “unless it first performs a Rule of Two analysis and determines that there are not two or more qualified veteran-owned small businesses capable of performing the contracts at a fair price.”

The apparent conflict between JWOD, on the one hand, and the VBA, on the other, was one of the major legal issues left unresolved by Kingdomware. Now, as we approach the one-year anniversary of that landmark decision, the Court of Federal Claims has delivered another big win for SDVOSBs and VOSBs.

This post originally appeared on the SmallGovCon blog at http://smallgovcon.com/service-disabled-veteran-owned-small-businesses/another-big-win-for-vets-sdvosbs-trump-abilityone-at-va-court-rules/#sthash.7trmkUf9.dpuf and was reprinted with permission.


WOSBs and The Rule of Two

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After publishing my article about sole source contracts for women-owned small businesses, I received the following comment on LinkedIn:

“Mr. Jaffe, isn’t it still very difficult for EDWOSB firms that provide services, i.e., program and project management, to receive sole source contracts due to the Rule of Two? The 8(a) program is different in that they can sole source to firms even if there are 100 other 8(a)s that can provide that service, whereas if a client wants a particular firm but there are others that provide the service then they can do a set aside, but can’t directly award a sole source contract to that EDWOSB.

Am I correct in this, or is the program changing so that the Rule of Two will not be a factor and EDWOSB’s are following the same sole source rules as 8(a)?”

When I followed up with Matthew to find out more about what was behind his question, he told me:

Bugbee Consulting is an EDWOSB for years now and we were excited about the changes to the program, until they were implemented and the rules were more similar to other programs rather than the 8(a). Essentially, no contracting office will attempt a WOSB sole source to a service-oriented firm like Bugbee Consulting due to the Rule of Two.”

My team and I dug a little deeper, but unfortunately we didn’t have any better news for Matthew. Indeed, the Rule of Two applies to the WOSB program, as it does to all other set-aside programs. WOSB sole source requires you follow the same rules that you do for service-disabled veteran-owned small business or HUBZone sole source procurements.

Contracting officers can accept TPC (third-party contracting) when verifying an offeror’s eligibility for WOSB or EDWOSB set-aside contracts or sole source awards. As well, contracting officers can accept a WOSB’s or EDWOSB’s self-certification, as long as the contracting officer verifies that the required documentation has been uploaded to the WOSB Repository.

Contracting Officers’ roles and responsibilities in connection with the WOSB Program are discussed in FAR 19.15. If you have more questions, I’d suggest you contact your local Procurement Center Representative (PCR) for guidance on WOSB Program requirements.


Small Business Jobs Act of 2010 – Defining Reduced and Late Payments

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Effective January 19, 2017, DoD, GSA, and NASA issued a final rule amending the Federal Acquisition Regulation (FAR) to implement a section of the Small Business Jobs Act of 2010. According to the Federal Register, “this statute requires contractors to notify the contracting officer, in writing, if the contractor pays a reduced price to a small business subcontractor or if the contractor’s payment to a small business subcontractor is more than 90 days past due.”

The new FAR clause 52.242-5 defines a reduced payment as a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor.

An untimely payment is defined as one that is more than 90 days past due under the terms and conditions of a subcontract, for supplies and services for which the Government has paid the prime contractor.

As I discussed in a previous post, these incidents then get reported into a system called FAPIIS, and a history of delayed payments in FAPIIS will affect a prime’s CPARS rating (Contractor Performance Assessment Reporting System), which could affect eligibility for future contracts.

These new clearer definitions give this ruling some teeth. Since it’s possible to get dinged in a permanent accountable way that will be noticeable to prospective customers, it’s advantageous for primes to pay on time.


2017 NDAA Changes to Mid-Tier Small Business Contracting

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As I wrote earlier on this blog, “Business growth is something that should be celebrated, yet if you’re a small business whose customer is the federal government, your growth can have a noticeable downside.” Namely, being too big to qualify for small business set-asides.

If your business falls into the mid-tier category of being too big to be eligible for set-asides but too small to compete with industry giants, here are the most important changes from the 2017 NDAA (click the links to learn more about each item):

  • Gives certain small subcontractors a new tool to request past performance ratings from the government. If the pilot program works as intended, it may ultimately improve those subcontractors’ competitiveness for prime contract bids, for which a documented history of past performance is often critical (learn more).
  • Will require the GAO to issue a report about the number and types of contracts the Department of Defense awarded to minority-owned and women-owned businesses during fiscal years 2010 to 2015. The GAO will be required to submit its report within one year of the statute’s enactment (learn more).
  • Designed to help ensure that large prime contractors comply with the Small Business Act’s “good faith” requirement to meet their small business subcontracting goals (learn more).
  • Establishes a new prototyping pilot program for small businesses and nontraditional defense contractors to develop new and innovative technologies (learn more).
  • Will extend the life of the Small Business Innovation Research and Small Business Technology Transfer programs (learn more).

We’ll keep digging into these topics and what they mean for your federal contracting success. Stay tuned!


Federal Contractors Can Now Protest Civilian Task Orders Over $10 Million

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We’ve talked before about protests, and when and how to do them, risk factors and warnings, etc., as well as some of the issues and processes. The perception is that there are a lot of protests, and that if YOUR contract award is protested, that’s clearly one too many…

One area that has expanded lately is the use of Multiple-Award (MA) IDIQ contracts, and the task orders underneath them have often been quite large. Originally, you could only protest contracts, but the task orders were immune to protests. Then, the GAO Civilian Task and Delivery Order Protest Authority Act of 2016 (H.R. 5995) became law on December 14, 2016.

Now, a contractor can protest “the issuance or proposed issuance of a civilian federal agency’s task or delivery order contract,” if the value of that order exceeds $10 million.

According to GAO statistics, for FY 2012 there were 2,475 protests filed with the GAO (U.S. General Accountability Office). In 2016 that rose to 2,789, so up a little bit more than 10% over four years. In 2012, protests were sustained, that is to say the protest was accepted, about 18% of the time. In 2016, that was up to 22.5%.

The three most common reasons to protest an order are:

  1. Brand name solicitation – The order references a brand name instead of the generic equivalent (e.g., Pepsi instead of cola).
  2. Out of scope modification – The agency adds work or changes a particular solicitation in a way that is out of the scope of that function. If the winning contractor got more work out of the original task order, the losing contractors were essentially shut out of bidding for those additional tasks.
  3. New information – The third most common reason to protest is new information that leads you to believe that the evaluation was unfair and that the losing contractor was “done wrong” by the government agency for not choosing them.

That third point is a big part of what protests normally come down to, i.e., “I don’t think you evaluated me (and/or the winner) fairly.” That may refer to evaluating price, technical proposal, or past performance.

Two other elements of protests are size standards, i.e., “I think these guys are too big for that NAICS code, even though they won the job,” and OCI (organizational conflict of interest), i.e., “I think the other company won because they were too close to the customer and learned secret information that helped them win.”

Without getting into the weeds, protesting when the evaluation is truly egregious is definitely a risk-reward kind of calculation, as the risks and legal costs can be quite high.


Employee Count NAICS Code Changes from SBA

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This is a guest post from Deltek’s GovWin IQ.

Deltek recently published an in-depth GovWin IQ analysis of the 2017 updates to NAICS code employee count size standards. SBA uses these standards to determine whether a business qualifies as a small business and is eligible for its set aside programs.

Here is a summary of those changes, reprinted with permission from the GovWin IQ report:

1. SBA increases small business size standards for NAICS Sector 31-33, Manufacturing

The SBA has issued a final rule to do the following:

  • Increase small business size standards for 209industries in NAICS Sector 31-33, Manufacturing.
  • Modify the size standard for NAICS 324110, Petroleum Refiners, by
    • increasing the refining capacity component of the size standard to 200,000 barrels per calendar day for businesses that are primarily engaged in petroleum refining; and by eliminating the requirement that 90percent of the output to be delivered be refined by the successful bidder from either crude oil or bona fide feed stocks.
  • Update footnote 5 to NAICS 326211 to reflect current Census Product Classification Codes 3262111 and 3262113.

SBA estimates that about 1,250 additional firms will become small because of revised size standards for the 209 industries in NAICS Sector 31-33.

2. SBA increases employee based size standards for industries in NAICS Sector 42, Wholesale Trade, and NAICS Sector 44 45, Retail Trade

The SBA has issued a final rule that:

  • Increases employee based size standards for 46 industries in North American Industry Classification System (NAICS) Sector 42, Wholesale Trade; Increases the employee-based size standard for one industry in NAICS Sector 44-45, Retail Trade; Retains the current size standards in the remaining industries in those sectors; Retains the current 500-employee size standard for Federal procurement of supplies under the non-manufacturer rule (13 CFR 121.406).

SBA reviewed all 71 industries in NAICS Sector 42 and two industries in NAICS Sector 44-45 that have employee-based size standards as part of its ongoing comprehensive size standards review as required by the Small Business Jobs Act of 2010.

Nearly 4,000 more firms in Sectors 42 and 44-45 will become small and therefore eligible for financial assistance under the revised employee based size standards. These revisions do not affect federal procurement programs. Newly eligible small businesses will generally benefit from a variety of Federal regulatory and other programs that use SBA’s size standards. Such benefits may include, but are not limited to, reduced fees, less paperwork, or exemption from compliance or other regulatory requirements.

3. SBA updates employee-based small business size standards for industries that are not part of Manufacturing (NAICS Sector 31-33), Wholesale Trade (NAICS Sector 42), or Retail Trade (NAICS Sector 44-45)

The SBA has issued a final rule to modify employee-based small business size standards for 36 industries and “exceptions” in SBA’s table of size standards that are not part of NAICS Sector 31-33 (Manufacturing), Sector 42 (Wholesale Trade), or Sectors 44-45 (Retail Trade). Specifically, the rule

  • Increases 30 size standards for industries and three “exceptions.”
  • Decreases size standards from 500 employees to 250 employees for three industries, namely NAICS 212113 (Anthracite Mining); NAICS 212222 (Silver Ore Mining), and NAICS 212291 (Uranium-Radium-Vanadium Ore Mining).
  • Maintains the Information Technology Value Added Resellers (ITVAR) “exception” under NAICS 541519 (Other Computer Related Services) as follows:
    • It retains the 150-employee size standard; and it amends footnote 18 to SBA’s table of size standards by adding the requirement that the supply component of small business set-aside ITVAR contracts (e., computer hardware and software) must comply with the nonmanufacturing performance requirements or nonmanufacturer rule.
    • Eliminates the Offshore Marine Air Transportation Services “exception” under NAICS 481211 (Nonscheduled Chartered Passenger Air Transportation), and NAICS 481212 (Nonscheduled Chartered Freight Air Transportation).
  • Eliminates the Offshore Marine Services “exception” for industries in NAICS Subsector 483 (Water Transportation), and their $30.5 million receipts-based size standards.
  • Removes footnote 15 (the “exception” to Subsector 483) from the table of size standards.

SBA estimates that about 375 additional firms may become small because of increased size standards for the 30 industries and three “exceptions” covered by this rule.

The revised size standards were effective as of February 26, 2016.

Source: SBA website; SBA’s final rule RIN3245-AG51 Regulations.gov (effective February 26, 2016)

This is essential information for small businesses looking to do contract work with the federal government. For more up-to-the-minute intelligence about the federal contracting landscape, check out Deltek’s GovWin IQ.


Restrictions for LPTA Procurements in NDAA FY17

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Contractors have complained for awhile about the government’s overuse of lowest-price, technically acceptable (LPTA) contracts. NDAA FY17 severely limits the use of LPTA evaluations in DoD procurements.

To use an LPTA methodology, the following criteria must now be met:

  • DoD is able to comprehensively and clearly describe the minimum requirements expressed in terms of performance objectives, measures, and standards that will be used to determine the acceptability of offers;
  • DoD would receive little or no additional value from a proposal that exceeded the minimum technical or performance requirements set forth in the solicitation;
  • Little or no specialized judgment would be required by the contract selection authority to discern the differences between competitive proposals;
  • The source selection authority is confident the bids from the non-lowest price offeror(s) would not produce benefits of additional significant value or benefit to the Government;
  • The Contracting Officer includes written justification for use of the LPTA scheme in the contract file; and
  • DoD determines that the lowest price reflects full life-cycle costs, including costs for maintenance and support.

The NDAA also cautions against the use of LPTA for these three types of contracts:

  1. Contracts that predominately seek knowledge-based professional services (like information technology services, cybersecurity services, systems engineering and technical assistance services, advanced electronic testing, and audit or audit readiness services);
  2. Contracts seeking personal protective equipment; and
  3. Contracts for knowledge-based training or logistics services in contingency operations or other operations outside the U.S. (including Iraq and Afghanistan).

As a final tool to gauge compliance, Congress mandated that the DoD publish annual reports for the next four years that explain the rationale for all LPTA contracts exceeding $10 million.


New Small Business Prototyping Program in NDAA FY17

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The National Defense Authorization Act (NDAA) for fiscal year 2017 passed Congress and was signed by the President. As I shared in a previous post, there were several items affecting small business owners.

The Act establishes something called the “Nontraditional and Small Contractor Innovation Prototyping Program.” At SmallGovCon, Ian Patterson notes this is good news for small businesses looking to break into Department of Defense contracting.

The program, which is funded with $250 million from the rapid prototyping fund established by last year’s NDAA, is intended to “design, develop, and demonstrate innovative prototype military platforms.”

In addition, Congress authorized $50 million for some specific projects, including:

  • Swarming of multiple unmanned air vehicles
  • Swarming of multiple unmanned underwater vehicles
  • Unmanned, modular fixed-wing aircraft
  • Vertical takeoff and landing tiltrotor aircraft
  • Integration of a directed energy weapon on an air, sea, or ground platform
  • Commercial small synthetic aperture radar (SAR) satellites with on-board machine learning
  • Active protection system to defend against rocket-propelled grenades and anti-tank missiles
  • Defense against hypersonic weapons, including sensors
  • Other weapon systems the Secretary designates

“In addition to sounding like something out of a science fiction movie,” Patterson writes, “these categories provide insight into some of Congress’s (and DoD’s) prototyping priorities–particularly those in which small and nontraditional contractors are expected to be able to play an important role.”

If one of these projects is a fit for your company, take note!

The program is structured to run through September 30, 2026.


NDAA FY17 – What’s Ahead for Small Business

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The National Defense Authorization Act (NDAA) for fiscal year 2017 passed Congress and was signed by the President in December 2016.

The committee report passed both Chambers of Congress, resolving differences with the White House. According to Chairman of the House Small Business Committee Steve Chabot (R-OH), these common-sense contracting and acquisition reforms will open new doors for small businesses in the coming year and set the stage for additional reforms in the new Congress.

Here is a summary of what’s ahead for small business:

Small business goals and transparency

  • Amends the Small Business Act to ensure that the goals established by the Act are measured against the total contract dollars spent that year rather than allowing SBA to exclude up to 20 percent of all spending
  • Ensures that the goals established by the Act are measured against the total contract dollars spent that year rather than allowing SBA to exclude up to 20 percent of all spending
  • Amends the Small Business Act to require the SBA to annually share a list of regulatory changes affecting small business contracting with the entities responsible for training contracting personnel

Duties of the OSDBU and contracting officers

  • Rewords section 15(a) of the Small Business Act as plain English so that small businesses and contracting agencies will better understand the current requirements of the law
  • Amends section of the Small Business Act to remedy an internal SBA decision that prevents SBA’s procurement center representatives from reviewing consolidated contracts if the contract was set aside or partially set aside for small businesses, even if the acquisition strategy harmed the ability of small businesses to compete for contracts
    • Allows procurement center representatives (PCRs) to review those contracts, which should improve opportunities for small firms
    • This provision was amended to include contracts awarded and performed overseas as being exempt from small business goaling (this amendment covered a tiny fraction of contracts that weren’t otherwise already exempt)
  • Allows the Offices of Small and Disadvantaged Business Utilization (OSDBU) to review agency purchases made using government credit cards to ensure compliance with the Small Business Act
    • Last year that in one agency over $6 billion in such purchases were made without regard to statutory requirements
  • Increased micro-purchase threshold
    • The micro-purchase threshold will be $5,000, which is a $1,500 increase over all civilian agency thresholds
    • This allows agencies to purchase small ticket items without having to go to the time, trouble and expense of competitively bidding each purchase

Subcontracting

  • Ensures that subcontracting goals are accurately reported and implement GAO recommendations on how goals are set

Mentor-Protégé

  • Adds a new paragraph to the Small Business Act creating a pilot program that allows small businesses to apply for past performance credit for work performed as a first-tier subcontractor
  • Amends section 831 of National Defense Authorization Act for Fiscal Year 1991 to allow the Department of Defense to rely upon SBA’s Office of Hearings and Appeals to make size determinations

Small Business Innovation Research (SBIR)/Small Business Technology Transfer (STTR)

  • Institutes a 5-year SBIR/STTR reauthorization, instead of a yearly reauthorization
    • The extension of these programs to 2022 will prevent these popular programs from expiring

SDVOSB definitions unified

  • Unifies the definitions and regulations applicable to the government-wide and Department of Veterans Affairs-specific contracting programs for veterans and service-disabled veterans and moves appeals from the VA’s program to the Office of Hearings and Appeals at the SBA

Cybersecurity for small businesses

  • The conference report also includes a bill to provide cybersecurity resources to small businesses through Small Business Development Centers
    • This bill gives small businesses access to tools, resources, and expertise to help protect their sensitive electronic data from cyber threats
    • The bill calls for SBA and DHS to work with Small Business Development Centers to provide assistance to small businesses

New small business prototyping program

Restrictions for LPTA procurements

Stay tuned for further discussion!


SDVOSB Programs: 2017 NDAA Sharply Curtails VA’s Authority

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This is a guest post by Steven Koprince of SmallGovCon. Please note that this blog post was originally published on December 5, 2016, before the Act was signed by the President on December 23, 2016.

The 2017 National Defense Authorization Act will essentially prevent the VA from developing its own regulations to determine whether a company is a veteran-owned small business.

Yes, you heard me right. If the President signs the current version of the 2017 NDAA into law, the VA will be prohibited from issuing regulations regarding the ownership, control, and size status of an SDVOSB or VOSB–which are, of course, the key components of SDVOSB and VOSB status. Instead, the VA will be required to use regulations developed by the SBA, which will apply to both federal SDVOSB programs: the SBA’s self-certification program and the VA’s verification program.

In my experience, the typical SDVOSB believes that VA verification applies government-wide, and relies on that VetBiz “seal” as proof of SDVOSB eligibility for all agencies’ SDVOSB procurements. But contrary to this common misconception, there are two separate and distinct SDVOSB programs. The SBA’s self-certification program (which is the “original” SDVOSB set-aside program) is authorized by the Small Business Act, which is codified in Title 15 of the U.S. Code and implemented by the SBA in its regulations in Title 13 of the Code of Federal Regulations. The VA’s separate program is codified in Title 38 of the U.S. Code and implemented by the VA in its regulations in Title 38 of the Code of Federal Regulations.

There are some important differences between the two programs. For example, the VA requires that the service-disabled veteran holding the highest officer position manage the company on a full-time basis; the SBA’s regulations do not. Following a 2013 Court of Federal Claims decision, the VA allows certain restrictions of a veteran’s ability to transfer his or her ownership, but that decision doesn’t necessarily apply to the SBA, which has held that “unconditional means unconditional,” as applied to transfer restrictions. And of course, the VA’s regulations require formal verification; the SBA’s call for self-certification.

Despite these important differences, the two programs are largely similar in terms of their requirements. However, last year, the VA proposed a major overhaul to its SDVOSB and VOSB regulations. The VA’s proposed changes would, among other things, allow non-veteran minority owners to exercise “veto” power over certain extraordinary corporate decisions, like the decision to dissolve the company. The SBA has not proposed corresponding changes. In other words, were the VA to finalize its proposed regulations, the substantive differences between the two SDVOSB programs would significantly increase, likely leading to many more cases in which VA-verified SDVOSBs were found ineligible for non-VA contracts.

That brings us back to the 2017 NDAA. Instead of allowing the VA and SBA to separately define who is (and is not) an SDVOSB, the 2017 NDAA establishes a consolidated definition, which will be set forth in the Small Business Act, not the VA’s governing statutes. (The new statutory definition itself contains some important changes, which I will be blogging about separately).

The 2017 NDAA then amends the VA’s statutory authority to specify that “[t]he term ‘small business concern owned and controlled by veterans’ has the meaning given that term under . . . the Small Business Act.” A similar provision applies to the term “small business concern owned and controlled by veterans with service-connected disabilities.”

Congress doesn’t stop there. The 2017 NDAA further amends the VA’s statute to specify that companies included in the VA’s VetBiz database must be “verified, using regulations issued by the Administrator of the Small Business Administration with respect to the status of the concern as a small business concern and the ownership and control of such concern.” At present, the relevant statutory section merely says that companies included in the database must be “verified.” Finally, the 2017 NDAA states that “The Secretary [of the VA] may not issue regulations related to the status of a concern as a small business concern and the ownership and control of such small business concern.”

So there you have it: the 2017 NDAA consolidates the statutory definitions of veteran-owned companies, and calls for the SBA–not the VA–to issue regulations implementing the statutory definition. The 2017 NDAA requires the VA to use the SBA’s regulations, and expressly prohibits the VA from adopting regulations governing the ownership and control of SDVOSBs. These prohibitions, presumably, will ultimately wipe out the two regulations with which many SDVOSBs and VOSBs are very familiar–38 C.F.R. 74.3 (the VA’s ownership regulation) and 38 C.F.R. 74.4 (the VA’s control regulation).

Because both agencies will be using the SBA’s rules, the SBA Office of Hearings and Appeals will have authority to hear appeals from any small business denied verification by the VA. This is an important development: under current VA rules and practice, there is no option to appeal to an impartial administrative forum like OHA. Intriguingly, the 2017 NDAA also mentions that OHA will have jurisdiction “[i]f an interested party challenges the inclusion in the database” of an SDVOSB or VOSB. It’s not clear whether this authority will be limited to appeals of SDVOSB protests filed in connection with specific procurements, or whether competitors will be granted a broader right to protest the mere verification of a veteran-owned company.

So when will these major changes occur? Not immediately. The 2017 NDAA states that these rules will take effect “on the date on which the Administrator of the Small Business Administration and the Secretary of Veterans Affairs jointly issue regulations implementing such sections.” But Congress hasn’t left the effective date entirely open-ended. The 2017 NDAA provides that the SBA and VA “shall issue guidance” pertaining to these matters within 180 days of the enactment of the 2017 NDAA. From there, public comment will be accepted and final rules eventually announced. Given the speed at which things like these ordinarily play out, my best guess is that these changes will take effect sometime in 2018, or perhaps even the following year.

The House approved the 2017 NDAA on December 2. It now goes to the Senate, which is also expected to approve the measure, then send it to the President. In a matter of weeks, the 180-day clock for the joint SBA and VA proposal may start ticking–and the curtain may start to close on the VA’s authority to determine who owns or controls a veteran-owned company.


This post originally appeared on the SmallGovCon blog http://smallgovcon.com/service-disabled-veteran-owned-small-businesses/sdvosb-programs-2017-ndaa-sharply-curtails-vas-authority/ and was reprinted with permission.


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