Federal Construction Contracting Blog : Federal Construction Contracting Law Firm : Cohen Seglias Pallas Greenhall & Furman PC : Construction Law, Dredging and Claims

A Final Rule governing Service Disabled Veteran-Owned small Business Concerns (“SDVOSB”) was published in the Federal Register on February 8, 2010. This law requires the Department of Veterans Affairs (“VA”) to verify ownership and control of veteran-owned small businesses, including service-disabled veteran-owned small businesses. The final rule also defines the eligibility requirements for businesses to obtain “verified'' status, explains examination procedures, and establishes records retention and review processes.

As reported by Jason Miller, the Executive Director of Federal News Radio in an article published in the SDVOSB Blog, Veteran-Owned and Service Disabled Veteran-Owned Small Businesses must have only one business in the federal contract set-aside program and work in that business full time. The article, entitled “VA Sets Rules for Set-Aside Program,” also emphasizes that “The net effect of this change is that a company that is closely held by veterans would qualify regardless of the size of the employee stock ownership program,” and “Alternatively, a firm that is not closely held by veterans will find it much more difficult to qualify for the Verification Program.”

Veteran-Owned and Service Disabled Veteran-Owned Small Businesses must re-certify annually to the VA that they meet the requirements to obtain set-aside contracts from agencies. The rule comes after the Government Accountability Office told the House Veterans Affairs Committee in December that the service-disabled veteran-owned business program is vulnerable to fraud and abuse. Anyone who seeks to use the services of a disabled veteran, or of an existing SDVOSB, to circumvent the letter and spirit of this program would be well advised to recognize that SDVOSB concerns are under close scrutiny because of the reported abuses.

Michael Payne is a Partner and is the Chairman of the firm's Federal Practice Group.
 

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By: Edward T. DeLisle

In recent testimony provided to the House of Representative’s Committee on Small Business, a disturbing fact was revealed: millions of dollars earmarked for Service-Disabled Veteran-Owned Businesses (“SDVOSBs”) have been paid to companies that do not qualify for the program. Compounding the problem is the fact that insufficient fraud-prevention programs exist to effectively combat such abuses. This was the conclusion reached by United States Government Accountability Office (the “GAO”) following a case study that included an investigation of ten (10) companies claiming SDVOSB eligibility.

In 2008 alone, $6.5 billion in federal contracts were awarded to companies that self-certified themselves as SDVOSBs. While this figure only represents 1.5% of all government contracts paid in that fiscal year, it is still a very large number. If the federal government ever attains its mandated goal of 3%, many more billions will become available to qualified SDVOSBs. Given the paucity of work in the private sector over the course of the last eighteen (18) months, many companies are attempting to tap into this potential source of revenue. As the GAO pointed out, however, a number of these companies have misrepresented their credentials, effectively taking contracts away from those that truly qualify to receive them.

The companies identified in the GAO case study received approximately $100 million in SDVOSB contracts, and over $300 million in additional 8(a), HUBZone and other non-SDVOSB contracts through the federal government. Certainly, none of these monies should have been paid to the companies in question. Notwithstanding the same, because there are no requirements to terminate contracts when a firm is deemed ineligible, in certain circumstances, companies were permitted to continue performing, despite the government’s determination that the firm did not qualify as an SDVOSB. Many more were not debarred from receiving federal contracts, even though the transgressions noted were obvious and seemingly blatant.

The GAO did note that Department of Veteran’s Affairs (the “VA”) has taken steps to address this problem by introducing an SDVOSB validation process. That process includes confirming an owner’s status as a disabled veteran, as well as his or her control over day-to-day operations. The problem, however, is that the VA’s certification and validation process is not a government-wide system. It is limited to those contracts issued directly by the VA. Because many other federal agencies issue contracts that are earmarked for SDVOSBs, there are considerable gaps in the SDVOSB program.

If your company is an SDVOSB, or if you are interested in forming a company that qualifies for participation in the program, it is very important for you to comply with applicable SBA and procurement regulations. The fierce competition for federal government contracts exposes many companies to size status protests which, if successful, can cause an SDVOSB to lose an award. Our Federal Contracting Practice Group is available to assist you with these important compliance issues.

Edward T. DeLisle is a Partner in the firm and is a member of the firm’s Federal Contract Practice Group. He is extensively involved in the representation of construction contractors on small business issues.

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