Provisions in a company’s Shareholders Agreement, requiring the service-disabled veteran to sell his shares back to the company in the event of the veteran’s death or incapacity, were contrary to the SBA’s SDVOSB regulations.
According to a recent SBA Office of Hearings and Appeals decision, these provisions prevented the veteran from having unconditional ownership over the company, because he could not dispose of his shares as he chose. In reaching its conclusion, SBA OHA wrote that Court of Federal Claims decisions allowing such provisions under the VA’s SDVOSB program didn’t apply to SBA–meaning that SDVOSBs verified by the VA might be ineligible for non-VA SDVOSB contracts.
What a mess.
OHA’s decision in Veterans Contracting Group, Inc., SBA No. VET-265 (2017) involved a Corps of Engineers IFB for the removal of hazardous materials and demolition of buildings at the St. Albans Community Living Center in New York. The Corps set aside the procurement for SDVOSBs under NAICS code 238910 (Site Preparation Contractors).
After opening bids, the Corps announced that Veterans Contracting Group, Inc. was the lowest bidder. An unsuccessful competitor subsequently filed a protest challenging
DoD procurements fall under the SBA’s SDVOSB regulations, not the VA’s separate rules. (As I’ve discussed various times on this blog, the government currently runs two separate SDVOSB programs: one by SBA; the other by VA). The protest was referred to the SBA’s Director of Government Contracting for resolution.
The SBA determined that Ronald Montano, a service-disabled veteran, owned a 51% interest in
The SBA then evaluated
OHA wrote that the Shareholders Agreement “places conditions on Mr. Montano’s ownership interest.” OHA explained
OHA wrote that the Court of Federal Claims decision dealt with “DVA’s
OHA’s opinion is consistent with its prior decisions, and not surprising in that respect. OHA’s job in cases like these is to interpret the SBA’s rules–nothing more. But for SDVOSBs, Veterans Contracting Group confirms that the government’s SDVOSB system is (to use official law school terminology), a hot mess.
In my experience, many SDVOSBs don’t even realize that the government runs two separate SDVOSB programs, much less
But since 2013, the VA accepts right of first refusal provisions like those at issue in Veterans Contracting Group. These provisions are commonplace in
Fortunately, changes are on the way. Thanks to the 2017 National Defense Authorization Act, the SBA and VA are working together on regulations to consolidate the SDVOSB eligibility requirements. Once these new rules are finalized, SDVOSBs will finally be able to play under one set of rules instead of two.
Of course, the consolidated regulations have yet to be proposed, much less enacted. For now, SDVOSBs should strongly consider taking a fresh look at their governing documents. As Veterans Contracting Group demonstrates, just because those documents might be VA-approved doesn’t mean that they’ll pass muster for non-VA procurements.
This content originally appeared on SmallGovCon.
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