Not Meeting SDVOSB Requirements Can Cause You to Lose Government Contracts
One of the common issues in getting small business SDVOSB certification is proving that you are in control of the business. The Federal Circuit Court of Appeals found that the SDV did not control the company because there was no showing that he had absolute control over the day-to-day decisions of the company
In the XOtech case, the SDVOSB appealed from a decision of the United States Court of Federal Claims (“the Claims Court” or “COFC”). The Claims Court affirmed the Small Business Administration Office of Hearings and Appeals’ (SBAOHA) determination that XOtech was not eligible to compete for federal government contracts for service-disabled-veteran-owned set asides as re quired by 13 CFR 125.13(d). The Federal Circuit Court agreed with the Court of Federal Claims who had affirmed the Small Business Administration Office of Hearings and Appeals’ decision.
If you have a limited liability company (“LLC”), there can no be issues as to whether you directly and unconditionally own at least 51% of the business. 13 CFR 125.12, (a), (c) does not spell out every detail and every situation where lack of control violates SDVOSB requirements.
For an LLC to be controlled by SDVOSB applicant (s), you have to show that the qualifying person(s) must (1) control the company’s long-term decision making, (2) conduct the company’s day-to-day management and administration of business operations;(3) hold the highest officer position, (4) serve as managing members,(5) have “control over all decisions of the limited liability company; and (6) meet all super majority voting requirements. The common and most difficult issue that comes up is whether the disabled veteran owned business owner really has control over “ all decisions’ of the company.
Does Your SDVOSB Operating Agreement Tell the True Story? Understand the Risk Involved
Many companies seeking to get SDVOSB certified simply draft generic LLC operating agreements but find themselves facing adverse decisions either at application stage or contract award stage. Neither is a good situation to be in.
Your operating agreement must show that the end of the day, you can overturn or unilaterally veto any company decision that has been made. If you cannot show this, then you run the risk of not being in control of the SDVOSB.
SDVOSB certification packages with operating agreements are uniquely subject to attack in court because the other side reads the agreement and makes allegations that you will now have to defend.
- Understand the ownership interest does not necessarily translate into voting interest.
- Voting interests is usually where applicants fail to meet the SDVOSB certification requirements.
- The ability to unilaterally remove managers does not rise to the level of absolute control.
How to Make Sure that You Are in Control?
In order to gain access to getting federal contracts for disabled veterans, proving absolute control of the SDVOSB in critical. Voting rights can be read differently. However, there situations when your business relationships or contractual relationships can cause you to lose a SDVOSB status protest due to management or business control issues. Every situation cannot be recited here. However, the way to approach the contested issue is whether at the end of the day can you really say that you are in ultimate control of the business. See also information about SDVOSB sole source threshold.
- If you are in doubt, you may want to consider having an SDVOSB certification attorney to assess the facts of your specific case.
What is the Process for Protesting Whether a Company Meets SDVOSB Certification Requirements Under 48 CFR 819.307 ?
According the Legal Information Institute, the following steps must be taking in accordance with
48 CFR 819.307 SDVOSB/VOSB Small Business Status Protests
(a) All protests relating to whether a Service-Disabled Veteran-Owned Small Business (SDVOSB) or Veteran-Owned Small Business (VOSB) is a ‘‘small’’ business for the purposes of any Federal program are subject to 13 CFR part 121 and must be filed in accordance with that part. SDVOSB and VOSB status shall be determined in accordance with 38 CFR part 74.
(b) A contracting officer or an interested party may protest the apparently successful offeror’s SDVOSB or VOSB status. ‘‘Interested party’’ for the purpose of filing a status protest is an actual offeror whose direct economic interest would be affected by the award of a contract or by the failure to award a contract.
(c) All status protests shall be in writing and shall state all specific grounds for the protest. Assertions that a protested concern is not an SDVOSB or VOSB concern, without setting forth specific facts or allegations, are insufficient. An interested party must submit its status protest to the contracting officer by close of business on the fifth business day after bid opening (in sealed bid acquisitions) or by close of business on the fifth business day after notification by the contracting officer of the apparently successful offeror (in negotiated acquisitions). An interested party must deliver their protest in person, by electronic mail, by facsimile, by express delivery service, or by the U.S. Postal Service within the applicable time period to the contracting officer. Any status protest received after these time limits is untimely. Any status protest received prior to bid opening or notification of intended award, whichever applies, is premature and shall be returned to the protester. Except for premature status protests, the contracting officer must forward to the Director, Center for Verification and Evaluation (CVE), any status protest received.
(d) The Director, CVE, will notify the protester and the contracting officer of the date the status protest was received by CVE and whether the status protest will be processed or dismissed for lack of timeliness or specificity.
(e) The Director, CVE, will determine the SDVOSB or VOSB status of the protested concern based upon the totality of circumstances within 21 business days after receipt of the status protest. If the Director, CVE, does not contact the contracting officer within 21 business days, the contracting officer may award the contract to the apparently successful offeror, unless the contracting officer has granted the Director, CVE, an extension. The contracting officer may award the contract after receipt of a status protest if the contracting officer determines in writing that an award must be made to protect the public interest. The contracting officer shall document this determination for the contract file.
(f) A denial decision by the Director, CVE, that is based on the failure to meet any service-disabled Veteran or Veteran criterion as defined in 38 CFR 74.1 is not subject to an appeal to the Executive Director, Office of Small and Disadvantaged Business Utilization (OSDBU), and is a final decision.
(g) The Director, CVE, will notify the contracting officer, the protester, and the protested concern of its determination. The determination is effective immediately and is final unless overturned on appeal by the Executive Director, OSDBU. The determination may be sent by mail, commercial carrier, facsimile transmission, or other electronic means.
(h) If the Director, CVE, sustains an SDVOSB certification or VOSB status protest and the contract has already been awarded, then the awarded contract shall be deemed void ab initio and the contracting officer shall rescind the contract and award the contract to the next SDVOSB or VOSB in line for the award. The ineligible SDVOSB or VOSB concern shall not be permitted to submit another offer as a SDVOSB or VOSB on a future SDVOSB or VOSB procurement under this part, unless it successfully appeals the determination of the Director, CVE, to the Executive Director, OSDBU, or unless it applies for and receives verified SDVOSB or VOSB status in accordance with 38 CFR part 74.
(i) Except as provided in subsection (f), the protestor or the protested SDVOSB or VOSB concern may file an appeal of the status protest determination with the Executive Director, OSDBU. The Executive Director must receive the appeal no later than 5 business days after the date of receipt of the status protest determination. The Executive Director will dismiss any appeal received after the 5-day period. ‘‘Filing’’ means a document is received by the Executive Director by 5:30 p.m., Eastern Standard Time, on that day. Documents may be filed by hand delivery, mail, commercial carrier, or facsimile transmission. Hand delivery and other means of delivery may not be practicable during certain periods due to, for example, security concerns or equipment failures. The filing party bears the risk that the delivery method chosen will not result in timely receipt by the Executive Director, OSDBU. Submit appeals to: Executive Director, OSDBU (00VE), U.S. Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420.
(j) The appeal must be in writing. The appeal must identify the status protest determination being appealed and must set forth a full and specific statement as to why the decision was based on clear error of fact or law.
(k) The party appealing the determination must provide notice of the appeal to the contracting officer. The Executive Director will decide all appeals under this subpart solely on a review of the evidence in the written protest file, arguments made in the appeal petition and response(s) filed thereto.
(l) The Executive Director will make a decision within 10 business days of the receipt of the appeal, if practicable, and will base the decision only on the information and documentation in the protest record as supplemented by the appeal. The Executive Director will provide a copy of the decision to the contracting officer and the protested SDVOSB or VOSB concern. The Executive Director’s decision, if received before the award, will apply to the pending acquisition. If the Executive Director decides in favor of the appealing party and the decision is received after the award, the contracting officer may terminate the contract or not exercise the next option. The Executive Director’s decision is the final decision. The decision may be sent by mail, commercial carrier, facsimile transmission, or other electronic means.
For help during the application, litigation or appeals stage for the SDVOSB veteran certification, call our government contract small business lawyers at 1-866-601-5518.
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