SBA Issues Proposed Rule – Comments due by March 30, 2018
By Wayne Simpson, CFCM, CSCM
The U.S. Small Business Administration (SBA) published its proposed rule for Ownership and Control of Service-Disabled Veteran-Owned Small Business Concerns in the Monday, January 29, 2018, edition of the Federal Register.
The proposed rule, part of a joint effort by VA and SBA to reduce the regulatory burden on the Veteran Business Community, will amend SBA’s regulations to implement the provisions in Section 1832 of the National Defense Authorization Act of 2017 (NDAA 2017), Public Law 114-328.
Section 1832 amends Section 3(q) of the Small Business Act and Section 8127 of 38 United States Code, to standardize definitions of Veteran-Owned Small Businesses (VOSBs) and Service-Disabled Veteran-Owned Small Businesses (SDVOSBs). The proposed rule will consolidate ownership and control requirements in one regulation eliminating duplicative functions. This single rule will streamline the verification and certification processes saving business owners time and money according to SBA.
NDAA 2017 mandates there be a single definition of ownership and control for VOSBs and VOSBs, which will apply to VA’s verification and Veterans First Contracting Program procurements, and all other government acquisitions which require self-certification. Under certain circumstances, NDAA provides a firm may qualify as a VOSB or SDVOSB where there is a surviving spouse or an employee stock ownership plan.
Also, NDAA 2017 places responsibility for issuing regulations relating to ownership and control for the U.S. Department of Veterans Affairs (VA) verification of VOSBs and SDVOSBs with SBA. It also requires the Secretary of Veterans Affairs to use the regulations established by SBA for establishing ownership and control of VOSBs and SDVOSBs.
The Secretary of Veterans Affairs will continue to determine whether individuals are Veterans or Service-Disabled Veterans and be responsible for verification of applicant firms.
However, under the proposed new rule, challenges to the status of VOSBs and SDVOSBs based upon issues of ownership and control will be decided by the administrative judges at SBA’s Office Hearings and Appeals (OHA).
According to the proposed rule, SBA consulted with VA so as to “properly understand VA’s positions and implement the statutory requirements in a way consistent with both SBA’s and VA’s interpretations.”
VA issued its proposed rule in the January 10, 2018, edition of the Federal Register, to update VA’s regulations to codify the changes required under Section 1832 of NDAA 2017. The public comment period for VA’s proposed rule closes on March 12, 2018.
SDVOSBs and VOSBs are strongly encouraged to review the Section-by-Section Analysis for more detailed information on the proposed rule. Below is a synopsis of the more significant parts SBA’s proposed rule. Some of the language in the proposed rule was adopted from SBA’s Section 8(a) Business Development Regulations, as SBA has always used, and will continue to use its 8(a) Program regulations for guidance on eligibility issues for SDVOSBs.
SBA proposes to:
· Define surviving spouse and requirements for a surviving spouse-owned SDVOSB to maintain program eligibility.
· Add definitions for “Daily Business Operations,” “Negative Control,” “Participant,” “Unconditional Ownership,” and “Employee Stock Ownership Plan.”
· Add a new definition for Service-Disabled Veteran with a permanent and severe disability.
· Add a definition for small business concerns which requires a firm be organized for profit with a place of business in the United States or which operates primarily in the United States, or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.
· Add a definition for “Extraordinary Circumstances” under which an Service-Disabled Veteran owner would not have full control over a firm’s decision-making process, but would not render the firm ineligible as a SDVOSB. The new definition will allow minority equity holders to have negative control under five circumstances proposed by SBA and be used by SBA to identify discrete circumstances SBA views as rare. SBA will propose five circumstances for the definition’s use and would be exclusive; SBA would not recognize any other facts or circumstances allowing negative control by individuals who are not service-disabled.
· Change the requirement for SDVOSB ownership of a partnership from the current requirement of 51% of each type of partnership interest whereby if a partnership had general partners and limited partners, SBA required the SDVOSB be both a general and limited partner. SBA proposes to change this requirement so SDVOSBs will need to own at least 51% of the aggregate voting interest in the partnership.
· Decide ownership issues without regard to community property laws, similar to SBA’s Women-Owned Small Business Regulations.
· Adopt language which allows SDVOSB firms owned by surviving spouses of Service-Disabled Veterans to remain eligible for the program, and provides guidelines for continued eligibility.
· Proposes new language which describes how to determine if a Service-Disabled Veteran controls the Board of Directors of the SDVOSB entity.
· Adds rebuttable presumptions that a person not working for a firm regularly during normal working hours does not control the firm. SBA notes this is not a full-time devotion requirement.
Wayne Simpson is a frequent contributor to VetLikeMe.