Business Issues: Impact of VA’s Rules for Veteran-Owned Contractors By Antonio R. Franco and James Baldwin The Department of Veterans Affairs has finalized its long-awaited regulations to provide service-disabled veteran-owned small businesses and veteran-owned small businesses with new preferential opportunities to contract with the VA. The new regulation implements the Veterans Benefits, Health Care, and Information Technology Act of 2006, which requires the VA to establish contracting goals for SDVOSBs and VOSBs and expands the VA’s authority to use contracting preferences for SDVOSBs and VOSBs. The regulation provides clarity on how the VA’s SDVOSB and VOSB programs will work. Under the final rule, a VA contracting officer may restrict competition to SDVOSBs or VOSBs under certain conditions. Additionally, sole source contracts may be awarded to SDVOSBs or VOSBs so long as the contract amounts are under certain thresholds. As eagerly anticipated, the rule also creates a VA mentor-protégé program for more experienced firms to provide training, guidance and resources for SDVOSBs and VOSBs to better compete together without being affiliated. This final rule comes at a time when the General Accounting Office has produced a highly critical report documenting fraud within the SDVOSB program. The fraud was detailed in a 2009 GAO report to the House Committee on Small Business and highlighted several firms that received federal contracts meant for SDVOSBs. (SAA, 12/4/09) The VA and the SBA have stepped up scrutiny of SDVOSBs in reaction to the GAO report and increased congressional pressure. This heightened scrutiny is occurring simultaneously with the VA’s and other federal agencies’ efforts to increase contract awards to such firms. The final rule requires the VA, among other things, to: (i) maintain a database of SDVOSBs and VOSBs; (ii) verify that registered firms are owned and controlled by veterans or service-disabled veterans; and (iii) use its set-aside and sole source award authorities only for these VA verified firms. Firms must register with VetBiz.gov in order to participate in the program. Any company that provides false or misleading information with regards to ownership or control could face debarment for up to five years. The final rule promotes increased assistance for SDVOSBs and VOSBs to enable such firms to perform large contracts. For example, the VA mentor-protégé program encourages mentors to assist SDVOSBs and VOSBs to obtain bonds and insurance—a critical form of assistance for many companies, particularly in the construction industry. Additionally, eligible mentors may be large or small businesses and either a prime contractor or subcontractor when teaming with the protégé. The VA has also proposed an interim rule that amends the procedure for SDVOSB/VOSB status protests. To consolidate the VA’s eligibility protest process with the SBA’s SDVOSB program rules, the VA and the SBA are in the process of finalizing a rule where the SBA will consider and decide SDVOSB and VOSB eligibility protests. In order to implement the procedure, the VA and the SBA must execute an interagency agreement for which the negotiations are not yet completed. The interim rule permits the VA’s executive director of the Office of Small and Disadvantaged Business Utilization to consider and decide SDVOSB and VOSB status protests until the interagency agreement is executed by the VA and the SBA. This newly adopted final rule provides clarity for SDVOSBs, VOSBs and firms that wish to team with these entities. Firms that move forward under this new regulatory structure should be cognizant of the revised requirements and operating parameters. Failure to heed the new rule’s restrictions could subject such firms to protest and severe and unintended consequences, including debarment. Antonio R. Franco is a senior partner and James Baldwin is counsel at PilieroMazza PLLC. At PilieroMazza, one of the firm’s primary practice areas is assisting SDVOSB, HUBZone, 8(a), SDB and other small firms in maintaining compliance with federal government requirements. If you have any questions regarding the SDVOSB or VOSB programs, please contact Tony at 202-857-1000.