Confusion in Service-Disabled Veterans Programs By Paralee White, Esq. PilieroMazza PLLC Firms participating in the service-disabled veteran-owned small business programs are confused—and rightly so. There is confusion due to changes that really are changes, such as the VA’s new rules; there is confusion because old rules are being newly enforced; and there is confusion because two separate agencies, the VA and the SBA, are running two separate programs with two separate sets of rules. Turning confusion into fear is the pressure now being placed on the VA to debar ineligible self-certifying firms after two recent GAO reports regarding fraud and abuse in the programs. Forget the fear and confusion, here is how to keep the rules straight and steer clear of trouble. First, think of the VA and the SBA programs as separate from one another, just as you think of the 8(a) and HUBZone programs as separate. SBA’s program applies governmentwide; the VA program applies only to contracts issued by VA. Second, know the differences in the rules of these programs. From the very beginning, the initial set-aside processes for the two programs are quite different. The VA program trumps all other set-aside programs by giving the SDV firms first priority for contracting with small businesses, followed by other veteran-owned businesses. Further, the program has fewer restrictions on sole source awards, allowing VA contracting officers to award sole sources contracts up to $5 million even if there are other SDV companies that could bid. Under the SBA program, however, non-VA agencies can award sole source contracts only up to $3 million for services and $5 million for manufacturing, and only if just one SDV firm exists that can do the work. The certification process is different. The SBA program requires merely self-certification. There is no requirement that the SDV business be on a database such as the VA’s VetBiz; and whether the company is or is not on VetBiz is irrelevant to a protest. However, if a firm protested under the SBA’s program happens to be on VetBiz, and it loses the protest, the company will be removed from VetBiz by the VA. Quite different from the SBA program, the VA rules (regulations and clauses) require that an SDV business be listed on VetBiz (though not verified) and have its eligibility verified by January 1, 2012. Veterans may have only one business in the verification program at a time, but apparently may still have more than one firm VetBiz-registered. VA has stated, and the law requires, that firms misrepresenting SDV status shall be debarred from VA contracting for a reasonable period of time. The ownership requirements are also different between the two programs. Specifically, subject to management control, as discussed in greater depth below, the SBA program allows a service-disabled veteran to have multiple SDV companies. The VA program, however, allows only one verified SDV business per veteran. The substantive “management control” requirements are different. The SBA program requires that management and daily business operations of the SDV firm must be controlled by one or more service-disabled veterans. An SDV business owner may be employed by other businesses, or own other businesses under the SBA program, as long as the veteran’s other ownership interests or outside employment does not impede his ability to control the SDVO SBC. The VA, on the other hand, requires that the service-disabled veteran work full-time for the registered SDV business. Moreover, the VA defines “full-time” as “during the normal working hours, which equate to Monday through Friday, approximately 9 a.m. to 5p.m.” Anecdotal evidence is that the VA will verify a firm if the owner has another job outside normal working hours, but the VA does not publish its decisions so it is hard to know what standards it applied. Further, in order to be identified on the VA VetBiz database as an eligible SDV business, the service-disabled veteran must earn the highest compensation unless he or she can demonstrate that electing to take a lower salary helps the business. The rules for forming joint ventures are different. In 2007 and again in 2009, the SBA interpreted the SDV ownership and joint venture regulations as prohibiting a service-disabled veteran-owned joint venture from being set up as a separate legal entity, such as a limited liability company (LLC). As a perfect example of the confusion sown by the two separate regulatory programs, the VA regulations and policy guidance expressly require SDV joint ventures that will perform VA contracts to become separate legal entities. Thus, SDV joint ventures pursuing VA contracts have an entirely different set of rules when compared to SDV joint ventures for all other agencies. Finally, the protest process is different, both for size and status. Participation in the programs requires knowledge of the rules and planning. Don’t let the confusion result in wasted proposal and bid efforts, or worse, suspension or debarment. Check out the rules and review compliance now—before a protest or verification begins.