by Steven Koprince
When it comes to regulatory compliance, being a SDVOSB isn’t easy. The VA has one set of rules; the SBA has another. Mastering them both can be challenging, to say the least (“wait, which program requires me to work full-time?”) But if you think you’ve got the regulations down cold, consider this: the SBA may refer to 8(a) program regulations to determine whether an SDVOSB is compliant.
Consider the case of Reese Services, Inc., SBA No. VET-231 (2013). In Reese Services, the SBA’s Director of Government Contracting (DGC), who evaluates SDVOSB protests, held that a putative SDVOSB was ineligible because its bylaws allowed a non-SDV to prevent a quorum. The D/GC’s decision was premised on two 8(a) program regulations, 13 C.F.R. §124.106(d)(2)(i) and 13 C.F.R. § 124.106(g)(1), which provide guidance regarding quorum provisions under that program’s rules.
The SBA Office of Hearings and Appeals held that the DGC’s use of the 8(a) program regulations was appropriate. Citing previous decisions, OHA wrote “[i]t is well-settled that the regulations regarding control of 8(a) BD and Small Disadvantaged Business program participants can provide guidance in interpreting the control requirement of SDVO SBC eligibility.”
Similarly, in Battalion, LLC, SBA No. VET-242 (2013), the D/GC determined that a company did not qualify as a SDVOSB in part because an outside entity provided bonding assistance and other financial support to the company. The D/GC’s determination cited 13 C.F.R. § 124.106(g)(2), an 8(a) regulation providing that control may arise when a non-disadvantaged individual owns an equity interest in a company and “provides critical financial or bonding support . . ..” OHA upheld the determination, again writing that the D/GC may refer to 8(a) program regulations in SDVOSB cases.
The SBA’s use of 8(a) program regulations has been upheld in several other cases, as well. But to make matters more confusing, OHA has held that not all 8(a) program regulations apply to SDVOSBs. In A1 Procurement LLC/JVS, SBA No. VET-223 (2011), a protester argued that a minority shareholder of a SDVOSB could not be a former employer of the SDVs because such an arrangement violated an 8(a) program regulation, 13 C.F.R. § 124.106(e)(2). OHA denied the appeal, writing that although 8(a) program regulations can be used to “interpret” SDVOSB eligibility requirements, “Appellant seeks not merely to interpret the regulation, but to import a specific provision that is not found in the SDVO SBC regulations.”
The VA’s SDVOSB regulations are sometimes criticized as too lengthy and cumbersome. That is a debate worth having. But let’s give the VA some credit—at least its requirements are all in one place. The fact that the SBA must interpret SDVOSB eligibility by reference to the regulations of a different socioeconomic program suggests that the current SBA SDVOSB regulations are in need of an overhaul—if for no other reason than to give SDVs fair notice of the rules under which they are supposed to operate.