VA Finalizes Verification Rules for Veteran-Owned Small Businesses with More Practical "Ownership and Control" Standard.

1.19.2011 - Posted in E&B Alerts - Government Contracts

Today the Department of Veterans Affairs (VA) adopted final verification guidelines for Veteran-Owned Small Businesses (VOSBs) participating in contract preference programs of the VA - commonly referred to as the "VetBiz" program. Under the Veterans Benefits, Health Care, and Information Technology Act of 2006 ("the Act") , the VA is authorized to set aside certain procurements for VOSBs, including sole source awards. To ensure that only legitimate VOSBs are eligible for these valuable preferences, VA maintains an online database of eligible VOSBs. VA has promulgated verification rules for use by the Center for Veterans Enterprise within the VA, which verifies the status of applicants for inclusion in the VetBiz database. On February 8, 2010, the VA published a set of interim final rules that modified the CVE verification process, and invited public comment before the rules were made final. Today's final rule adopts the February 8, 2010 rules, but with important changes and clarifications.

Of greatest significance to startup businesses, the VA abandoned that portion of the interim final rule that required a veteran to have only one business in the VetBiz database and to work full-time in that business. Responding directly to comments submitted by Eckland & Blando lawyers that the "full time/one firm" rule conflicted with Congress' clear intent in the Act, the VA agreed and stated that "[t]he full-time requirement, coupled with the single business requirement placed an undue burden on veteran business owners who may have part ownership in several legitimate VOSBs or SDVOSBs."

In place of the "full-time/one firm" rule, the VA agreed with the comments submitted by Eckland & Blando and reverted to previous language that simply required one or more veterans or service-disabled veterans to have requisite management capabilities and show sustained and significant time invested in the business. In accordance with the VA explanation for the change, "sustained and significant time" will depend on the status and nature of the business - less time may be required for a small startup business than for a mature business with many contracts. To enforce this requirement, the final rules require a veteran owner-applicant engaged in management or employment outside the applicant concern to "submit a written statement supplemental to the application which demonstrates that such activities will not have a significant impact on the owner's ability to manage and control the applicant concern." Thus, a veteran may now own more than one business in the VetBiz database, and need not devote full time to the business, as long as a written impact statement is provided and accepted by the CVE.

In addition, the final rules clarify that a veteran-owned business in the VetBiz database may enter into joint venture agreements with other businesses without losing or jeopardizing its status as a verified VetBiz entity. The VA agreed that, while joint ventures are treated as separate entities under state law, participation in a joint venture to perform a single business opportunity does not reduce a veteran owners ability to manage a the verified business entity. For this reason, joint-venture applicants to the VetBiz database are exempt for the requirement to submit a written impact statement.

The new final rules are effective February 18, 2011. Any veteran business owner seeking verification in the VetBiz database must carefully review the new rules to ensure they are in compliance. For veteran owners with outside employment or management commitments, a thoughtful, well-written impact statement will be critical to gaining CVE approval. New and existing VOSBs should also review their organizational documents and VetBiz applications carefully to ensure that they comply with the new rules. For assistance with these or other small business-related matters, contact Tim Connelly at [email protected] or (612) 236-0160.