VA Issues Significant Changes to Veteran Business Verification Rules

Yesterday the Department of Veteran Affairs (VA) adopted as final its interim rules on verification of veteran-owned small businesses and service-disabled veteran-owned small businesses. The final rules apply to VA determinations of federal government contractor eligibility to be entered into the VetBiz VIP database. Contractors in the VetBiz VIP database are eligible to receive preferential treatment in VA contracting programs under 38 U.S.C. § 8127, including set asides and sole-source awards.

The rules published on Monday included several important changes intended to address comments received by the VA during the rule making process. These changes include:

  • A requirement that an eligible veteran work full-time in the business seeking verification. Full time employment is defined as “working at the business during normal working hours, which equate to Monday through Friday, approximately 9 a.m. to 5 p.m.”
  • Guidance on resolving conflicts between VA verification as an eligible service-disabled veteran-owned business and a contrary finding by the Small Business Administration (SBA) under the protest process of Part 19.3 of the Federal Acquisition Regulation. The new rule unequivocally states that a firm will be removed from the VetBiz VIP database if the firm is found ineligible as a result of a protest to the SBA.
  • A one-year limitation on eligibility for listing in the VetBiz VIP database, effectively requiring businesses to reapply for verification annually, just as a contractor must annually certify its small business size status in the Central Contractor Registry.
  • Treatment of shares of stock in an Employee Stock Ownership Plan (“ESOP”) as “excluded stock” in certain closely-held businesses. In such cases, the required veteran ownership of 51% will be examined with reference solely to non-excluded stock.

The new rules have added significance for Minnesota-based veteran-owned businesses. Under a 2009 law, Minnesota provides the same bidding preference to veteran-owned businesses that “targeted group” businesses receive in bidding on state contracts. To be eligible for the Minnesota veteran-owned business preference, a contractor must pass the VA verification process.

These rules reflect the VA’s continuing concern that veteran-owned businesses be truly independent and not simply a representative or “pass through” for a non-eligible firm. Although the new rules are effective as of February 8, 2010, the VA will accept comments on the interim final rules until March 10, 2010. The final rules are available at 75 Fed. Reg. 6098.

For further information, contact the attorneys at Eckland & Blando.